How to calculate EIR for COE loan

[Kixon9]

I'm thinking whether to take a COE loan at 3% or pay in cash about 25k which is currently earning 3.55%pa in boc smartsaver account. What is the effective EIR of loan given at 3%?
Pls advise

 

[OngHuatHuat]

I never really check, but should be around twice the interest rate published.

I'm thinking whether to take a COE loan at 3% or pay in cash about 25k which is currently earning 3.55%pa in boc smartsaver account. What is the effective EIR of loan given at 3%?
Pls advise

 

[henrylbh]

If I remember correctly, it is a requirement that HP Agreement must state the effective interest rate, usually on page 1 of agreement.

 

[shareholder]

Better pay up in cash, the loan rate is definitely higher. Think about it, is it logical for banks to lend out at a lower rate than the rate they give depositors. If they do it, they are losing money.

 

[dexboi]

ignore my calcs. use the one below for simple calculations.

 

[Stallone]

3% of 25k = 750$

if u loan 5yrs then total 3750$

3750 of 25000 = 15%

http://www.sgcarmart.com/services/uloan_calculator.php#instalment_results

 

[Mecisteus]

EIR = {[1 + (i/n)]^n } - 1

where i = stated interest rate
and n = no. of periods in a year

If 3% is charged monthly,
then i = 0.03 and n = 12

EIR will be 3.04%

You might need to check your statement.

 

[Kixon9]

Hmm 3.04% seems too low from 3%

DBS car loan at 2.28% is already EIR 4.29%

EIR = {[1 + (i/n)]^n } - 1

where i = stated interest rate
and n = no. of periods in a year

If 3% is charged monthly,
then i = 0.03 and n = 12

EIR will be 3.04%

 

[hwmook]

EIR = {[1 + (i/n)]^n } - 1

where i = stated interest rate
and n = no. of periods in a year

If 3% is charged monthly,
then i = 0.03 and n = 12

EIR will be 3.04%

Car loans are simple interest rate loans.
3% on a 100k loan mean $3k interest every year of the loan, it doesn't fmget reduced according to amount owed so EIR is around double of simple interest rate.

 

[Mecisteus]

Why you don't know?
So simple you don't know why you claim and act like an expert in financial calculations in the property thread?

If so simple why don't you help to correct.

 

[dexboi]

sorry. i don't own a car so don't understand how their loans work. pls ignore my calcs.

 

[pcmdan]

Enter into a financial calculator

N = loan period (in days)
PV = how much u loan
Pmt = how much ur instalment per month
Fv= 0

I/r will be ur effective interest rate.

Can do it on Excel...just that u need to understand the terms

Alternatively..give me all the parameters..I help u calculate

 

[Mecisteus]

Don't feed the trolls.

 

[pcmdan]

Actually EIR not that simple for layman to calculate.

The lay man has to know quite a few parameters.. whether is it simple or compounded...by days,months,or yearly

Is it upfront full interest collection

Is it charge at beginning or ending balance

Is it reducing balance or loan balance

Not that str. Forward

Seems ez for people who knows..but people who aren't savvy...not quite

 

[Kixon9]

Thanks guys
Actually I just wanted to know if I should put 25k BOC Smartsaver at 3.55% and take a COE loan at 3%. OR should I use cash to pay one lump sum of COE; Which one is more profitable? (Actually not very sure EIR helps?)

 

[henrylbh]

calculationsEIR = {[1 + (i/n)]^n } - 1

where i = stated interest rate
and n = no. of periods in a year

If 3% is charged monthly,
then i = 0.03 and n = 12

EIR will be 3.04%

You might need to check your statement.

Definitely something is amiss. EIR should be 6% + or -n without actual calculation. But I can only do it manually using spreadsheet cause not good at formula.

Most instalment commences at start of loan,

 

[Mecisteus]

Definitely something is amiss. EIR should be 6% + or -n without actual calculation. But I can only do it manually using spreadsheet cause not good at formula.

Most instalment commences at start of loan,

Put the car loan aside.

Just look at the following formula.

He said 3% charged monthly. 3% should be an annual rate.

If 3% is monthly, effective interest rate is >36%.

EIR = {[1 + (i/n)]^n } - 1

where i = stated interest rate
and n = no. of periods in a year

If 3% is charged monthly,
then i = 0.03 and n = 12

EIR will be 3.04%

 

[Kixon9]

No.
Flat interest rate loan of 3% p.a. is equivalent to about 5.5% p.a. equivalent interest rate (5.5% is my guess - exact figure needs you to provide the loan period you want to take up).
Why not you tell us the loan period you want to take up?
Anyway, looks like not worth earning 3.55% p.a. BUT pays about 5.5% p.a.!

loan period = 5 years

 

[dexboi]

Ok, let me try again after checking out how car loans work in SG.
Assuming you take a $25k, 5yr loan payable monthly @ 3%p.a:

Spoiler

Your total repayment amt (principal + interest) is:
[(25,000 x 0.03 x 5) + 25,000] = $28,750

Your monthly repayment amt is:
[(25,000 x 0.03 x 5) + 25,000] / (5x12) = $479

Punching these values into the Financial Calculator:
PV = $25,000
N = 60
PMT = -$479
FV = 0
Computed monthly interest to be 0.47%/mth.

Hence, your Annual Effective Interest Cost is [(1 + 0.0047)^12] - 1 = 5.79%p.a
Seperately, the Annual Effective Interest Rate for BOC is 3.61%p.a

In layman terms...
Your BOC $25k will earn you total interest of $4847 at the end of 5yrs (compounded monthly).
Your $25k car loan would attract a total interest of $3750 over the period of 5yrs.

Scenarios:

1. If you use full cash to pay $25k, you would have saved $3750 of car loan interest payments but miss out the opportunity to earn $4847 interest from the bank. Net Savings: $3750

2. If you take a car loan of $25k and NOT touch your BOC at all, the bank interest at the end of 5yrs would be sufficient to cover the loan interest. Net Savings: $1097

3. If you take a car loan of $25k, NOT touch your BOC but uses the interest earned ($75.20/mth) to pay for the interest-only component of your car loan ($62.50/mth), you will still earn some bank interest at the end of 5yrs. Net Savings: ~$739

4. If you were to drawdown from your BOC every month to finance the car loan payment, then you would be worse off. Because you would have lose the bank's bonus interest on decreasing AUM yet maintaining the car loan repayments.

It really depends on your appetite, your capacity and how you want to manage your cash flows given the above scenarios. The best choice I think would be Scenerio 1 in terms of savings you can achieve.

Any bros wish to chip in and check my works again? Went digging into some of my financial notes.

Images above were generated from this calculator.

 

[pcmdan]

Don't think your working is right. EIR should be read like apple to apple.

How can it be possible that your EIR is higher for loan yet less interest than EIR for savings.

Just preliminary assessment. Later I reach office if free I calculate as well