Downpayment for car

[endlssorrow]

For those who have already purchase your new cars, how much do you loan? 60% or 50% better?

now bank rate is like 2.78%

 

[wahkao3]

2.78% ?????
hahahahaha! where got 2.78% EAR so cheap
living in fantasy land?

 

[limster]

Car loan was 2.28% last year.

If now its 2.78%, quite expensive already. Is it some sort of dealer-bank tie up? Not allowed to get a cheaper loan from a different bank?

 

[SpinFire]

It really depends on your budget. If you have money, take as little loan as possible. Remember that car loans are quoted in flat interest rates. In comparison, housing loans have reducing interest rates.

A 5-year 2.28% car loan has an effective interest rate of 4.33%.
A 5-year 2.78% car loan has an effective interest rate of 5.24%.

So if you have an investment that earns you >5%, just take max loan amount lor.

You can use this little calculator to help you convert.
http://loan.mastervb.net/interest_rate_conversion.php

 

[Jazzbie]

It really depends on your budget. If you have money, take as little loan as possible. Remember that car loans are quoted in flat interest rates. In comparison, housing loans have reducing interest rates.

A 5-year 2.28% car loan has an effective interest rate of 4.33%.
A 5-year 2.78% car loan has an effective interest rate of 5.24%.

So if you have an investment that earns you >5%, just take max loan amount lor.

You can use this little calculator to help you convert.
http://loan.mastervb.net/interest_rate_conversion.php

Don't really understand the need to use EIR over SIR for investment comparison, since it is fixed interest cost over the 5 year period.

E.g. if my capital used to pay the loan can yield an annual return of 4% elsewhere, won't it be better getting a loan and earning the difference of 1.72% based on SIR?

 

[zacharylam]

Don't really understand the need to use EIR over SIR for investment comparison, since it is fixed interest cost over the 5 year period.

E.g. if my capital used to pay the loan can yield an annual return of 4% elsewhere, won't it be better getting a loan and earning the difference of 1.72% based on SIR?

If your investment earns an annual return of 4%, that is your effective annual return. You must then compare it with the EIR of ~5%, NOT flat interest rate of 2.78%

 

[Jazzbie]

If your investment earns an annual return of 4%, that is your effective annual return. You must then compare it with the EIR of ~5%, NOT flat interest rate of 2.78%

I meant an annual rate of 4% that does not account for the the effect of compounding.

The returns will be used to pay the interest cost, and not to re-invest which will give you higher effective annual rate due to compounding effect.

 

[Jazzbie]

If your investment earns an annual return of 4%, that is your effective annual return. You must then compare it with the EIR of ~5%, NOT flat interest rate of 2.78%

I meant an annual rate of 4% that does not account for the the effect of compounding.

The returns will be used to pay the interest cost, and not to re-invest which will give you higher effective annual rate due to compounding effect.

An hypothetical example: a 5 year fixed deposit that pays 4% per year. Will it be better to leave capital in the FD, or pay off the loan?

 

[Happygirlzz]

It really depends on your budget. If you have money, take as little loan as possible. Remember that car loans are quoted in flat interest rates. In comparison, housing loans have reducing interest rates.

A 5-year 2.28% car loan has an effective interest rate of 4.33%.
A 5-year 2.78% car loan has an effective interest rate of 5.24%.

So if you have an investment that earns you >5%, just take max loan amount lor.

You can use this little calculator to help you convert.
http://loan.mastervb.net/interest_rate_conversion.php

The 2 plus percent is interest rates.. then wats effective interest rates ?? Why 5 plus percent ?? So is 2 plus percent or 5 plus percent for car loan?,

 

[hwmook]

I meant an annual rate of 4% that does not account for the the effect of compounding.

The returns will be used to pay the interest cost, and not to re-invest which will give you higher effective annual rate due to compounding effect.

An hypothetical example: a 5 year fixed deposit that pays 4% per year. Will it be better to leave capital in the FD, or pay off the loan?

I can see some of you guys here are hopeless in understanding the different type of interest. A car loan does not use interest rate on reducing balance like a mortgage loan. Interest rate on reducing balance is also effective interest rate since you only pay interest on what you owe. A car loan quote a simple interest rate aka a fixed rate base on the amount you borrowed and not the amount you owe. Let's say you take a car loan of 100k of 2.78% interest for 5 years, it mean that you pay interest of $2.78k every year even when the amount you owe decrease over time. To answer your question, a FD of 4% is lesser than the effective interest rate of the car loan of >5% so you should pay off the car loan ASAP. 2.78% is not effective interest rate, go and learn some finance if you still don't understand.

 

[hwmook]

The 2 plus percent is interest rates.. then wats effective interest rates ?? Why 5 plus percent ?? So is 2 plus percent or 5 plus percent for car loan?,

Go and learn the different type of interest rate first. Only effective interest rate can be used to compare the different type of interest rate.

 

[Mecisteus]

I meant an annual rate of 4% that does not account for the the effect of compounding.

The returns will be used to pay the interest cost, and not to re-invest which will give you higher effective annual rate due to compounding effect.

An hypothetical example: a 5 year fixed deposit that pays 4% per year. Will it be better to leave capital in the FD, or pay off the loan?

Different loans may have different kind of payment structures. Like a balance transfer, you take a loan less a % of processing fee. Then pay minimum amount each month and remaining principal at maturity. In order to make a fair comparison between loans, you need to calculate the EIR of each type of loan.

Make use of the XIRR function in Excel.

 

[Panerex]

If I simply sum up the total interest to be paid over the car loan period, and compare the value of freebies I can get from the sales agent, I can simply assess which mode is more worth?

Of course, disregarding time value of money of the interest outflow over 5 years.

 

[Happygirlzz]

I can see some of you guys here are hopeless in understanding the different type of interest. A car loan does not use interest rate on reducing balance like a mortgage loan. Interest rate on reducing balance is also effective interest rate since you only pay interest on what you owe. A car loan quote a simple interest rate aka a fixed rate base on the amount you borrowed and not the amount you owe. Let's say you take a car loan of 100k of 2.78% interest for 5 years, it mean that you pay interest of $2.78k every year even when the amount you owe decrease over time. To answer your question, a FD of 4% is lesser than the effective interest rate of the car loan of >5% so you should pay off the car loan ASAP. 2.78% is not effective interest rate, go and learn some finance if you still don't understand.

Sorry i still dun understand...??

 

[oceanicmanta]

Sorry i still dun understand...??

if u dont have a car loan, then ignorance is bliss

 

[wahkao3]

I can see some of you guys here are hopeless in understanding the different type of interest. A car loan does not use interest rate on reducing balance like a mortgage loan. Interest rate on reducing balance is also effective interest rate since you only pay interest on what you owe. A car loan quote a simple interest rate aka a fixed rate base on the amount you borrowed and not the amount you owe. Let's say you take a car loan of 100k of 2.78% interest for 5 years, it mean that you pay interest of $2.78k every year even when the amount you owe decrease over time. To answer your question, a FD of 4% is lesser than the effective interest rate of the car loan of >5% so you should pay off the car loan ASAP. 2.78% is not effective interest rate, go and learn some finance if you still don't understand.

yes exactly! some OF YOU GUYS ARE HOPELESS AND YOU SHOULD GO LEARN SOME FINANCE!

 

[dork32]

yes exactly! some OF YOU GUYS ARE HOPELESS AND YOU SHOULD GO LEARN SOME FINANCE!

you should not be condemning people. not too long ago, you also could not understand the difference.

 

[dork32]

Sorry i still dun understand...??

there are some people that dont understand this at all their whole life. but they still go through it. when the bill come, just pay, nothing will happen to you.

 

[dork32]

For those who have already purchase your new cars, how much do you loan? 60% or 50% better?

now bank rate is like 2.78%

for myself, i took a zero loan when i bought my car last year. i think only komoco allows that. i dont see a point paying a 5.xx% effective interest.

 

[henrylbh]

yes exactly! some OF YOU GUYS ARE HOPELESS AND YOU SHOULD GO LEARN SOME FINANCE!

Even with help, some will still not understand. Like my class, all failed maths including me, except One. All had to drop the subject and the one who passed was transferred to another class