Personal loan

[Space303]

Seeking some advice. I have a big purchase of 30k which i can use cash to cover.

Does it make sense to place this under fixed deposit e.g. 4.1% RHB and take up a personal loan and pay off monthly e.g. 3.4% uob/eir 6+%? Interest frm.RHB $1230 versus interest pay to uob $1020...seem like a good deal here but not sure if i miss out anything.

Abit sianz to see the amt drop so thinking if i shd spread over 1 year.

Thank you in advance

 

[a4973]

Seeking some advice. I have a big purchase of 30k which i can use cash to cover.

Does it make sense to place this under fixed deposit e.g. 4.1% RHB and take up a personal loan and pay off monthly e.g. 3.4% uob/eir 6+%? Interest frm.RHB $1230 versus interest pay to uob $1020...seem like a good deal here but not sure if i miss out anything.

Abit sianz to see the amt drop so thinking if i shd spread over 1 year.

Thank you in advance

what is this "3.4% uob/eir 6+%" ?

 

[IcYFl4mEz]

Can the 30k be pay by cc? if so apply ocbc credit card. u earn 1% rebate also

 

[sglandscape]

Can the 30k be pay by cc? if so apply ocbc credit card. u earn 1% rebate also

Or the amex true cashback card, 1.5% cashback with no caps.

 

[dork32]

what is this "3.4% uob/eir 6+%" ?

eg you borrow 10k on 1 jan.

from 1 feb to the next 1jan you pay 10340/12 per month.

3.4% is the total interest. effective interest is 6++%

 

[BBCWatcher]

Does it make sense to place this under fixed deposit e.g. 4.1% RHB and take up a personal loan and pay off monthly e.g. 3.4% uob/eir 6+%? Interest frm.RHB $1230 versus interest pay to uob $1020...seem like a good deal here but not sure if i miss out anything.

You missed the significance of what UOB tells you. The EIR (effective interest rate) on the personal loan is well over 6%. The EIR on the fixed deposit is close to 4%. UOB would win that contest, and you would lose.

UOB’s “headline” rate doesn’t reflect the full cost of the loan. It’s a marketing number, really. The EIR does.

 

[a4973]

You missed the significance of what UOB tells you. The EIR (effective interest rate) on the personal loan is well over 6%. The EIR on the fixed deposit is close to 4%. UOB would win that contest, and you would lose.

UOB’s “headline” rate doesn’t reflect the full cost of the loan. It’s a marketing number, really. The EIR does.

But looking at post #5 it does look workable.
The UOB interest is $340 / 10k / year.
The RHB FD 4.1% interest is $410 / 10k / year.

 

[mp4005 help]

But looking at post #5 it does look workable.
The UOB interest is $340 / 10k / year.
The RHB FD 4.1% interest is $410 / 10k / year.

then how can it be EIR 6+%?


Read HWZ Forum Rules!

 

[BBCWatcher]

Let’s suppose you borrow $30,000 from UOB for 24 months. Your monthly loan payment would be $1,335. EIR would be 6.40%. Total cost is $32,040.

OK, you place the $30,000 in a 24 month fixed deposit at RHB with a 4.10% p.a. interest rate. That delivers $32,550 at the end of 24 months.

So you come out $510 ahead, right? Not exactly. You have to pay $1,335 per month starting now, and that money cannot generate any returns for you once you pay it to UOB. And that’s what the EIR helps capture.

Now, if you would otherwise keep that $32,040 in a 0.05% interest bearing bank account then maybe this maneuver could make some sense. Does that seem realistic? Of course not. You could (also) put it in a RHB fixed deposit!

Also, UOB is offering a rebate that evidently isn’t reflected in the EIR. That might skew the outcome a bit. Just bear in mind that if you miss a payment the consequences are expensive.

 

[BBCWatcher]

OK, so what if you don’t have that $32,040 today? Instead you expect $1,335 per month out of future income. ($1,335 per month less that you’ll be able to save, and no, it won’t go into a 0.05% bank account.) I suppose you could do that, but isn’t that rather (or very) risky? You’re basically buying a fixed deposit (of all things!) using a medium priced (not particularly cheap) loan. And you’re advancing your future pay to do it.

Maybe there’s some odd edge case where if you don’t do this you’re going to blow the $1,335/month on whiskey instead. So this Rube Goldberg construction is how you force yourself to save for the wedding 2 years from now. For example. But it doesn’t seem like a broadly applicable technique.

 

[BBCWatcher]

I appreciate the idea, though! The basic idea — that if you can reliably generate a higher return using a genuinely low cost loan you should — is a good one. (With a couple important assumptions attached, for example consumer spending prudence.) These forums are filled with stories of people paying off 1.5% and 2.6% mortgages faster than required in the current and similar market interest rate environments. And borrowing fewer of these genuinely cheap dollars than allowed. And choosing shorter rather than longer repayment periods. That’s all frustrating when ~4.0% EIR T-bills (!) currently exist.

 

[revhappy]

Seeking some advice. I have a big purchase of 30k which i can use cash to cover.

Does it make sense to place this under fixed deposit e.g. 4.1% RHB and take up a personal loan and pay off monthly e.g. 3.4% uob/eir 6+%? Interest frm.RHB $1230 versus interest pay to uob $1020...seem like a good deal here but not sure if i miss out anything.

Abit sianz to see the amt drop so thinking if i shd spread over 1 year.

Thank you in advance

EIR is what matters when it says 6%, it is 6%.

Personal loan is worse than balance transfer. Remember personal loan is equal monthly instalments, so by middle of the term you would already paid back half of the loan, the installments you paid could have been used to DCA in investments.

But Balance transfer is payment of only 1% each month so until the last month you still have about 90% of the loan with you.

So for your example I would say it is a NO GO.

I took a balance transfer with Citibank for 86k and 3.5% processing fee and 0% interest for 1yr. In this case the EIR is really close to 4% and not 6-7% like it would be in case of a personal loan. So I can still deploy the 86k in FD and earn 4% and breakeven. In your case it is no brainer, don't take the personal loan, see if you can get a balance transfer instead.

 

[sohguanh]

I took a balance transfer with Citibank for 86k and 3.5% processing fee and 0% interest for 1yr. In this case the EIR is really close to 4% and not 6-7% like it would be in case of a personal loan. So I can still deploy the 86k in FD and earn 4% and breakeven. In your case it is no brainer, don't take the personal loan, see if you can get a balance transfer instead.

Hi I haven't try balance transfer yet so ask your experience if you don't mind sharing. The 3.5% processing fee is upfront deduct from your case 86k? E.g your balance transfer amt is 86k but when they give you the amount is 86k - 3.5% ? Then really 0% for one year.

 

[BBCWatcher]

Revhappy, I’m not quibbling with your rate logic, not much anyway. But how did you amass a $86K balance to transfer? Asking a different way, how did you end up with $86K in investible cash?

 

[revhappy]

Revhappy, I’m not quibbling with your rate logic, not much anyway. But how did you amass a $86K balance to transfer? Asking a different way, how did you end up with $86K in investible cash?

I just called up Citibank and asked them what is the maximum balance transfer amount they would offer me. My salary just hit 10k, so they allow about 12X monthly salary credit limit for people with 120k income. Below 120k, the limit drops drastically to just 4X. Around that time when I applied for it(Novement), bond yields were going up like crazy so when Citibank said 3.5% 86k for 1yr, I did the quick calculations and I knew even if I keep it in Tbills/FD, i will be able to breakeven. So just itchy fingers/empty mind devils workshop, whatever you want to call it I took the loan.

By the way I also have a balance transfer from SCB for 30k for 6 months. So right now the total outstanding I have is more than 120k and recent couple of credit card applications of mine got declined. I guess, this is affecting my credit rating. But I dont care, I am never going to be buying a house or anything in Singapore.

 

[revhappy]

Hi I haven't try balance transfer yet so ask your experience if you don't mind sharing. The 3.5% processing fee is upfront deduct from your case 86k? E.g your balance transfer amt is 86k but when they give you the amount is 86k - 3.5% ? Then really 0% for one year.

It is indeed applied upfront, but no need to pay it off upfront.
So 86k balance transfer and 3.01k is the BT fee, total charge on the credit card is 89.01k.
The BT fee is also charged 0% interest for 12 months.
I just need to pay 1% of the outstanding an minimum payment each month until 11th month.

My own calculations say the EIR is closer to 4% and not 5% as Citibank says in the above calculation. But I dont know.

 

[sohguanh]

It is indeed applied upfront, but no need to pay it off upfront.
So 86k balance transfer and 3.01k is the BT fee, total charge on the credit card is 89.01k.
The BT fee is also charged 0% interest for 12 months.
I just need to pay 1% of the outstanding an minimum payment each month until 11th month.

Sorry you mention 0% interest for one year so why still need to pay 1% of outstanding minimum payment each month? I was thinking how it works is processing fee pay and that's it you no need pay for 12 months. Only after that then you pay the full 86k back to them. It is not working in this way?

 

[revhappy]

Sorry you mention 0% interest for one year so why still need to pay 1% of outstanding minimum payment each month? I was thinking how it works is processing fee pay and that's it you no need pay for 12 months. Only after that then you pay the full 86k back to them. It is not working in this way?

No. Need to pay 1% outstanding each month. This is a credit card basic rule. They just want you to keep paying regularly 1% atleast. Even if you pay like 5% in one month, they still want you to pay 1% of the remaining outstanding each month.

I just look at it as 1% to be paid for 11 months, so 11% to be paid off on average in 5.5 months. Remaining 89% you have for 12 months.

 

[sohguanh]

No need to pay 1% outstanding each month. This is a credit card basic rule. They just want you to keep paying regularly 1% atleast. Even if you pay like 5% in one month, they still want you to pay 1% of the remaining outstanding each month.

I just look at it as 1% to be paid for 11 months, so 11% to be paid off on average in 5.5 months. Remaining 89% you have for 12 months.

Oooh I see so in actual fact you do not have full 86k from second month onwards as you need to pay at least 1% monthly onwards. Now I understand why you mention have about 89% actual cash on hand and not 100% I see. Bank smart also don't wanna take too much risk themselves. But 89% is quite good provided you can deploy elsewhere to get more profits.

 

[revhappy]

Oooh I see so in actual fact you do not have full 86k from second month onwards as you need to pay at least 1% monthly onwards. Now I understand why you mention have about 89% actual cash on hand and not 100% I see. Bank smart also don't wanna take too much risk themselves. But 89% is quite good provided you can deploy elsewhere to get more profits.

There must be some psychology behind this regular minimum payment of Credit cards. It is like they take this thing so seriously. They charge you a late fee if you miss a payment, no matter you pay like 5X the min payment the previous month or the next month, they still want you to keep paying the minimum payment atleast.

Credit cards were invented in America, maybe they thought if you keep people disciplined about paying every month, there is some kind of fear in them and they will not go delinquent or something like that? @BBCWatcher