BOC Loan vs Car Loan

[pcmdan]

BOC Savings (Smart Saver) vs Car Loan

Hi there, i am puzzled with something

Car loan works differently with Savings in the sense they charge the interest way upfront on the full sum.

If I have $53k, I can use to pay full car loan or continue to put in BOC savings.

I calculated with the following:

1. Car Loan is $53k
2. Years of Loan 5 years
3. Car loan interest, 2.48% (EIR:4.7%)

1. BOC saving $53k
2. Years of Saving 5years
3. Interest, 3.55% (EIR: 3.61%)

assuming i have a steady cash inflow of $992.87 monthly, which mean i dont touch my savings at all,

The interest i pay on loan: $6,572
The interest i get on savings: $10,278 --> i know this is compounded

Anyone able to explain in layman term why is this so?

I got mental block suddenly cant explain why.

 

[Mecisteus]

Because your loan interests is always EIR of the principal balance.

As you service your loan, your interests portion are getting lower and lower.

 

[pcmdan]

Because your loan interests is always EIR of the principal balance.

As you service your loan, your interests portion are getting lower and lower.

Eh...but for Car loan, the interests have already been recognized upfront and divided equally in 60 months.

Hence the interest and P remain constant throughout.

Your statement is only true for Housing Loan.

 

[Mecisteus]

Eh...but for Car loan, the interests have already been recognized upfront and divided equally in 60 months.

Hence the interest and P remain constant throughout.

Your statement is only true for Housing Loan.

It doesn't matter. I just tried it out myself.

You convert your $993 monthly payments to a typical amortizing loan (53k loan @4.7%).

Your total interests is the same.

 

[pcmdan]

It doesn't matter. I just tried it out myself.

You convert your $993 monthly payments to a typical amortizing loan (53k loan @4.7%).

Your total interests is the same.

Of course it would be the same right? U using the same parameters mah

But still it doesnt explain my question that I am asking. I am wondering why the interest i saved in BOC is still more than the interest it costs me to take a loan with a higher EIR

 

[Mecisteus]

Of course it would be the same right? U using the same parameters mah

But still it doesnt explain my question that I am asking. I am wondering why the interest i saved in BOC is still more than the interest it costs me to take a loan with a higher EIR

Your total interests is based on the simple interests. My total interests is based on the amortizing loan at 4.7%. I said both are the same.

And I explained to you why the interests is less.

Anyway it is not correct to sum interests across time.

You pay $1k interests upfront compare to paying $1k interests at maturity. Are both the same?

Whatever it is, you are better off paying the loan. Put the $993 monthly into the BOC. After 5 years, the FV of your cash balance is more then the loan option.

 

[pcmdan]

Your total interests is based on the simple interests. My total interests is based on the amortizing loan at 4.7%. I said both are the same.

And I explained to you why the interests is less.

Anyway it is not correct to sum interests across time.

You pay $1k interests upfront compare to paying $1k interests at maturity. Are both the same?

Whatever it is, you are better off paying the loan. Put the $993 monthly into the BOC. After 5 years, the FV of your cash balance is more then the loan option.

Sum the interest across time? Sorry I dont get you. Can explain?

Can you have more than 1 BOC account? Putting $993 into BOC? U won't even get 3.55% for the first few years wor.

Anyway if you pay in cash upfront, you have to pay more on the car price.

 

[Mecisteus]

Sum the interest across time? Sorry I dont get you. Can explain?

Can you have more than 1 BOC account? Putting $993 into BOC?

Anyway if you pay in cash upfront, you have to pay more on the car price.

I don't know. I don't drive. I assume if you pay cash upfront, you are paying $53k too.

If different, then just calculate accordingly. See which method gives more FV on your cash balance.

You pay car in cash, your BOC is empty. You can deposit $993 monthly into BOC. Isn't it?

 

[Mecisteus]

LOL!
pcdan question so simple to explain with simple math principle you also can't explain and you were trying to quarrel with me over some more complicated leverage return calculations previously?

As usual, a troublemaker.

I know my calculations. At least I don't mislead with >40% average returns.

Maybe you are just too old to admit why you wrong. I understand this.

 

[Mecisteus]

You know but why pcmdan still don't understand what you are trying to explain to him?

So you are trying to say his problem is becoming my problem just because he don't understand?

 

[pcmdan]

I don't know. I don't drive. I assume if you pay cash upfront, you are paying $53k too.

If different, then just calculate accordingly. See which method gives more FV on your cash balance.

You pay car in cash, your BOC is empty. You can deposit $993 monthly into BOC. Isn't it?

If I pay cash upfront it will be 55k.

Yup u are right. If I pay in full my box is empty

1. Anything below a certain amount u don't get 3.55%

2. U don't have to pay interest but the interest u earn is pathetic to say.

Having the 53k in BOC...u still have a net gain...

So net net if u pay cash upfront, u will lose more

If based on FV, of course the one with a higher EIR will be higher. but still it doesnt explain on the cash outflow.

 

[pcmdan]

You tried to answer his question didn't you?
The problem here is: your answer is bullshxt lah!
That is why he still don't understand.

Hi ervino...do u have an answer?

 

[havetheveryfun]

1. Car Loan is $53k
2. Years of Loan 5 years
3. Car loan interest, 2.48% (EIR:4.7%)

1. BOC saving $53k
2. Years of Saving 5years
3. Interest, 3.55% (EIR: 3.61%)

The interest i pay on loan: $6,572
The interest i get on savings: $10,278 --> i know this is compounded

am a noob and don't really understand EIR but why are you using 2.48% to calculate the interest rate of the car loan then ?

0.0248 x 53k x 5 = $6572

so since BOC gives 3.55% interest, which is more than 2.48% , naturally the interest is more ?

 

[pcmdan]

am a noob and don't really understand EIR but why are you using 2.48% to calculate the interest rate of the car loan then ?

0.0248 x 53k x 5 = $6572

so since BOC gives 3.55% interest, which is more than 2.48% , naturally the interest is more ?

No worries. EIR = effective interest rate.

The car dealer will tell you that it is 2.48% so your calculation is right. This is the interest that will be included in your repayment instalment.

BOC gives 3.55% is simple interest. The Effective interest rate is 3.61% (due to the monthly compounding effect)

Effective interest rate take into effect time value of $ and it will compare interest apple to apple.


E.g. Car loan charge ur interest upfront, whereas savings give u interest monthly. One show 2.48% where the other is showing 3.55%. But because the way the interest is being computed differently, you cant compare them based on face value. EIR makes them into a common unit so that you can compare them.


So for my instance, a car loan is charging at 4.7% EIR vs the savings from BOC at 3.61% (now we can compare like for like)

 

[havetheveryfun]

No worries. EIR = effective interest rate.

The car dealer will tell you that it is 2.48% so your calculation is right. This is the interest that will be included in your repayment instalment.

BOC gives 3.55% is simple interest. The Effective interest rate is 3.61% (due to the monthly compounding effect)

Effective interest rate take into effect time value of $ and it will compare interest apple to apple.


E.g. Car loan charge ur interest upfront, whereas savings give u interest monthly. One show 2.48% where the other is showing 3.55%. But because the way the interest is being computed differently, you cant compare them based on face value. EIR makes them into a common unit so that you can compare them.


So for my instance, a car loan is charging at 4.7% EIR vs the savings from BOC at 3.61% (now we can compare like for like)

then what Mike said should be right, even though its 4.7% but the 53k amount reduces as you pay the loan. But for BOC ur capital is constant throughout.

the answer to the question is to find out how the car dealer get back 2.48% interest rate from 4.7% EIR (a difference of a whopping 2% whereas the BOC only has a 0.1% difference) and you will have ur answer. as shouldn't the difference of the base interest and EIR be similar or at least only differ by a bit ?

 

[havetheveryfun]

sorry, what I meant was , maybe u could ask the car dealer how much interest u have to pay per month if u do not pay the full loan up front... then use that as comparison instead

 

[pcmdan]

then what Mike said should be right, even though its 4.7% but the 53k amount reduces as you pay the loan. But for BOC ur capital is constant throughout.

the answer to the question is to find out how the car dealer get back 2.48% interest rate from 4.7% EIR (a difference of a whopping 2% whereas the BOC only has a 0.1% difference) and you will have ur answer

Ya i have been thinking hard on what he said. Because for loan, one amortize it. I think i got confused because on how dirty the banks structure their car loans.

Additionally, i am being trained that EIR is a way to determine products. So a higher EIR for loans is bad but a higher EIR for savings is good.

The dealer has a whopping 2.22% is due the way on how interest are being charged upfront on the full loan amount for the full 5 years period. This is the part I get confused --> since they alr charged upfront, the Principle + Interest (P+I) becomes the loan amount. They will be paid monthly with same rate for P and I.

Of course, if based on what Mike has said, it seems to make sense. Because if we were to amortize the loan, higher principle will get paid at later stage. And u have correctly pointed out that as the repayments are being made, your loan size becomes smaller whereas bank balance remain constant throughout.

 

[pcmdan]

sorry, what I meant was , maybe u could ask the car dealer how much interest u have to pay per month if u do not pay the full loan up front... then use that as comparison instead

$6,572 is the interest you have to pay for the full 5years. This translate to $109.53 per month for a $53k loan.

 

[Mecisteus]

then what Mike said should be right, even though its 4.7% but the 53k amount reduces as you pay the loan. But for BOC ur capital is constant throughout.

Well done. It shows someone understands my explanation.

Unfortunately, an old uncle said my explanation is rubbish just because he don't understand.

 

[Mecisteus]

I calculated with the following:

1. Car Loan is $53k
2. Years of Loan 5 years
3. Car loan interest, 2.48% (EIR:4.7%)

1. BOC saving $53k
2. Years of Saving 5years
3. Interest, 3.55% (EIR: 3.61%)

assuming i have a steady cash inflow of $992.87 monthly, which mean i dont touch my savings at all,

Another way to look at is the the simple interests.

2.48% is slightly more than half of 3.55%.

Both princinpals are the same.

Interests for loan is slightly more than than BOC savings.

So it makes sense.