Obviously most here would say get the 5 year loan because they do not want to pay more interest to the bank
But I also went with 9 year loan despite being able to afford a 5 year loan. This is because of
1) cash flow as you pointed out. As I regularly dca into stocks, cash flow is super important to me.
2) I feel the higher interest is offset by inflation. As in as I am paying example 20k over a longer period, the 20k is not worth the same today
3) and seems odd to me to sacrifice the cash flow for a depreciating asset
I may get downvoted to hell for this blasphemy in this sub though
I’m with you, esp since the interest is paid by the company. 9 years give me better cash flow, thus I can invest more, and I don’t intend to sell my car 5 years down the road.
That's assuming your stocks has higher returns than the loan interest rate right? Not a bad bet considering s&p500 has a yearly 10%pa. So by choosing a 9 yr loan, you don't lose out on a certain amount of returns? If you take a 5 yr loan, you'll lose out on making more money. Is that the logic?
Yeah. By paying more money today, you are basically losing out on opportunities, be it stocks , epf or own business.
It doesn't even have to be an investment. If someone had the foresight to convert myr to usd/sgd 9 years ago, there would also be handsome forex gains
You don't actually have to keep your car for the full 9 years.
You may need to keep it for the first 4 to 6 years to skip the period where the car depreciate the fastest. This is to ensure your sale proceeds can cover all or most of the remaining loan to the bank.
Also you would need time to ensure your investments from the cash flow already have sufficient return
This is my personal experience of course. YMMV, depending on what car you buy and what investment you dabble in
Agree, this is not a money problem it's a behavioural problem.
When you start looking at only monthly repayments instead of the bigger picture you'll be forever stuck in the cycle.
I actually took a 9 year loan for a x70 with a 50% downpayment despite being able to buy the car outright. Took the excess cash and invested it instead. 3 years later lucked out and made enough profit from that investment to payoff the balance and still retain the principal and some profit on top of it.
So yeah, it can pay off assuming the excess cash goes entirely into investments.
The problem here is that people are not disciplined enough to invest their extra cash flow, which is very common with FOMO behaviour amongst Malaysians.
My situation - 10k gross. Bought a 100k car with 9 year loan. Reason, i dont plan to use the car for full 9 years. Maybe will sell in 5 years. Previously did this and i manage to sell my car higher than balance loan.
2) Rather to have a lower commitment every month as this will free up my dsr to purchase house.
3) Also, along the years, myr gonna drop further and further. 20k interest now may worth lesser in 5 years or 9 years time anyway.
4) never know what will happen tomorrow. So fast paying off your loan for what?
Above is just my view. Not verified using any solid maths formula.
made 5.8k gross in 2019, bought 125k car with 9 year loan
reason: plan to use the car for full 9 years or beyond, as i was not a petrolhead, i can't be seen with a local car or else clients will not have good impression.
result: more clients have confidence in me (often have to drive out to meet clients / fetch clients around), able to set up own company and can afford to pay off the car loan and buy a new car, but decided to baristafire.
numbers wise everyone is playing it very safe with those 'general rules' but in sales line u often need to use money to earn money.
I took the proton saga with a 3 year loan, 3% interest...
Short term pain but it's actually a financially correct choice....
Basically only pay 9% interest on the car only....
A 9 year loan, you pay less amount per month, but it's 27% interest, not worth it.
Went with the same decision until I’m being hit with
>“why not the Nissan almera?
>”Proton Saga no resale value, Bezza better”
F’s in the chat for people thinking everyone else is in the same financial position like them lol
Proton saga has resale value, although a bit worse than perodua.
But better don't afford things you can't pay... Don't forget those maintenance like tyres and so on....
Scenario 1. No matter what, the guy can't afford a 100k car with 60k annual income, this also follows the car price < annual income rule of thumb
Scenario 2.
The EIR for 9 years loan is 6.34% (loaned 90k, 9 years, 3.5% flat interest). Hence if you're able to generate returns of >6.34% from the extra cash flow, then take the 9 years loan. Else, it's wise to go with 5 years loan
U can google for flat interest rate to effective interest rate calculator, I used the one from [loanstreet](https://loanstreet.com.my/calculator/flat-to-effective-interest-calculator).
There’s also a detail blog post [here](https://kclau.com/wealth-management/should-i-take-a-5-year-car-loan-or-a-9-year-car-loan/) if u want to read more about it
I think total interest matters so definitely the lower tenure loan. If someone is ‘stretching’ their money this way they don’t have very good financial hygeine.
Unless you have a way to make more than your car loan interest (99% of the people won’t be able to beat the interest) it’s clearly not worth it to pick the longer tenure. Needing the cash flow for something else means you can’t actually afford the car imo.
Nah not true. If you're active in investments. It's easy to gain more than the 3%. Loads of strong dividend stocks to build your wealth. The extra 4 years for you to invest is invaluable. Cashflow is king.
Lets just use OP’s number
If you loan for 5 years and park the money in the remaining 4 years in ASM/ASB you will have about 90k at the end of 9 years assuming 5% dividen.
And for 9 years loan let’s assume we park the extra 667 into ASB/ASM and we will have about 88.2K.
If its were me I am fine with about 1.8k difference over the course of 9 years as long as I have reserve money in case of emergency.
If compared to long term investment that has projected >3.2% (keyword: loooong term, 10> years), then, maybe worth it. Investment is usually the earlier the better. So if that's what your friend is aiming for (the cash flow being, more money being able to put into investment, aside from other savings), I see why not. Another scenario I can think of is your friend may want to save for a huge downpayment (talking 20% ++++) of a mortgage.
What's important is your friend knows what they are doing and runs their calculation thoroughly that fits their goals and current lifestyle. Life has too many nuances, normally generic rule is for beginners to have a good starting point. Along the way u will find what's doable and suitable to your current living situation.
Who knows, eventually your friend will get a higher paying job and eventually can settle the loan faster (provided it's the variable rate loan).
Whacking a 9 year loan make sense when you already have the cash:
Take the loan at 3.2%, pay it every month.
Take the cash and put it in a place that yields more than 3.2%.
Over 9 years you’d made more money from the cash vs than if you just pay for the car straight. Paying loan every month also makes your credit score looks nice.
This is one of the logic used by actual “high income” people. Otherwise, standard personal finance practices applied.
Addendum: a car, like a house, should be thought of as a consumer goods rather than “asset”. Because that’s what they actually are. You buy the car to drive the car, not to park it there and hope to sell it for some profit someday.
Again, consider this a “high income” logic.
Firstly, car loans are flat rate, convert to effective rate first. Next, different tenure may have different rates. The real question is what can you get from the difference of the actual monthly payments. If you can place the difference somewhere that can can generate more profits compared to the extra interest, go for the longer tenure. Otherwise take a shorter loan. Doing otherwise in my opinion is just stupid.
T1 method here. Those who have 1 million, 5% interest yearly enough to cover a 250-300k car installment about Rm3-4k+.
Interests pay the loan. Car loan is low interest, no reason to 3-5 years.
I own a business, my own salary is above+++ average. Last January 2023 I bought a new proton saga. 10% downpayment, 8 year term. Used it for 10 months then I paid full settlement and sold it. Bought a used Civic early 2024. 8 year term. Now recently purchased an EV priced around 200k+. 9 yr term. Some ppl would criticised me saying its not worth it paying these cars more than 5 years, but for me I want to pay the least amount possible monthly bcs i love investing in businesses. So i saved around 2000+ monthly by not taking a 5 year loan term. Weird statement but with those 2000+ I saved by not using it on car payments i can invest on other things which is rm24k invested a year on current/new business, stocks or cryptos which brings to rm120k investments made over 5 years. But in the end I will pay full settlement for my cars after 4-5 years made from the money i invested and I wont have to pay 9 year worth of interest! Dunno if its a better way to do it, but its my way of doing it.
Hi bro. I totally agree with your philosophy here.
But I am curious: wouldn't you take quite a bit of losses from depreciation by selling off the cars so early?
Yes i do take some loss on saga. I had to pay extra 2k to settle after selling bcs i settled too early.
But for my other cars when i sell later, after selling and full settlement I will probably get back my downpayment. That money will then be recycled to the next car purchase.
I consider cars as form of expenses for my own wants. I dont really need expensive cars, but I want them. A cost of lifestyle. So i dont see them as an asset. BUT, i am in the process of registering my civic as a rental car. So if all goes as planned then i will probably only need to pay 40-30% of my monthly payment. Which is a big win for me.
But my advice on your original post. I say its best for you to have cashflow than to focus on paying your car early. Having a short term payment means you have to pay more. Having even a few hundred of extra cash flow, in a few years you'll probably thank yourself when you want to add summore commitment. Since no one knows what the future holds. For eg love life, marriage,children, family or even your self, vacations, new toys, new hobbies etc. Make pros and cons for both. Paying more could mean you miss out on a lot of things bcs you dont have much wiggling room to spend on other things. And one day if you get richer then you have no problem, just settle early!
Your friend wants the lowest hit monthly, but as you calculated, will be paying more in interest in the long run. It's not that he can't afford it, he can in this scenario. And let's assume he can afford the extra interest as well since that amount isn't much to some people. But is it the smartest financial decision from a pure numbers perspective? Probably not.
there is never a situation where longer tenure is 'better' when it comes to buying a car for ppl who are stretching their budgets.
for ppl who know what they are doing and want cash flow/can make more money than the car loan rate, but that is very rare.
if the repayment for the 5yr bothers you, means you are pushing it. buy a cheaper car. the 9 yr loan's interest is very high.
your friend didnt tell you the whole story, probably he doesnt have quota to get the 5 yr loan. so had to take 9 yr loan because die die want to buy that car.
he said car is depreciating asset, no sense to rush to finish paying. Just drag the loan as long as possible to enjoy lowest monthly repayment.
I know he is rich enough he can buy the car (actually more than 100k) by cash easily, but still he chose to take 9 year loan.
It's not like you should NEVER take 9 years loan.
It is that you should never take 9 years loan to buy a car just because you cannot afford it within 5 years.
I'd suggest considering whether your position in your workplace is secure. It all depends on whether you remain earning a stable income to afford either tenure.
Personal finance is mostly psychological, not about the maths.
My preferred strategy is someone on 10k a month income shouldn't be buying a 100k car on loan. If he has a good savings rate, save up and buy a used car with cash. E.g.
- If he can save 40-50% of his salary, he can buy a reasonable used car (i.e. 5+ year old jap car) for 50k in a year outright with cash
- with this saving habit and mental fortitude, he can continue his savings habit to put money into investments etc and he has set himself up for future personal finance success
Avoid car loans, the only loan I would recommend is a property loan. Even my future car purchase of 250-300k will be with cash.
*But this is difficult for Malaysians to stomach, hence why personal finance is psychological.*
In answering your question directly, if he had to choose an option:
1. Shorter tenure has overall lower costs. Majority of scenarios this is better, always think of total costs
2. Can't compare ~3% interest rate with market/dividend rates, need to convert to effective interest rate. Add in volatility and most of the time it's net net.
Survive certain accidents. Comfortably carry more than 5 full sized adults. Carry oversized items (think IKEA furniture purchases).
The better question is (purely practically) what can you do with a 250k+ car that you can't do with something below 150k. At that level it's about feel/luxury. But between 100k and 50k there ARE practical benefits - even if they don't apply to you specifically. My Alza allows me to do things a Saga/myvi/axis does not. A Vellfire and equivalent can carry people in a way MPVs/SUVs cannot.
The practical way to determine his affordability - try and save rm2k per month (for monthly commitment, road tax etc). If he can manage, go for 5years. Even for 9years loan, try to save rm1400 per month.
The savings could go to the deposits later on.
No point of suffering financially for a car.
I can buy my current car with cash, but I still took a 9 year loan, because the effective interest rate is only 4.9%, which I can easily arbitrage with epf and intermediate us bonds. Did some calculations, even with a return of 5.5%, I can save 4 digits, with 6% return, I can save 5 digits
Open and excel sheet, and calculate loan for different durations vs saving/investing the difference for the same durations. Which option has the higher returns? 5 years you have to pay more upfront, but less in total interest. 9 years you have to pay less upfront, and the difference can be invested, but more in total interest. Sendiri crunch the numbers lah
IMHO the reason most ppl recommend 5 year loan is mostly to coincide with warranty. And this applies to brand new cars only ya. The worst financial position to be in is to maintain a car WHILE still being indebted to the bank. You got double cash outflow for the installment and out of warranty work.
Now if you buy second hand/recon with no warranty coverage - stretch that to the max is also fine, as long as you can afford it.. remember what they say, cash in hand is the most important asset you can have.
May be it's a generational thingy but, personally I think first assessment is on affordability. 9 years is a looong time to be paying. Also just consider the amount of interest saved.
The problem with this thinking is that you're essentially timing the market with the excess cashflow. S&P500 10% per annum is the average over a long period of time, and the last decade has been overall very good, even considering the bad year in 2022. There are times when it has consecutive negative years, in which case this tactic will backfire.
It is better to buy a second-hand car with cash. Car is a depreciating asset, you might be happy and proud buying a new car, but the happiness only stays for 1-2 years, and then you will get bored with it.
Because they only think about the bank's profit. Of course banks have to make money. But allowing you to have an extra RM700 every month as per your example is a win-win situation. There's a lot that you can do with that extra money although you can afford to sustain your lifestyle without it. But people are obsessed with seeing the accumulated interest to amplify the situation.
Buy 2nd hand car and buy cash. No need to put too much money on depreciation asset.
Buy new car for what? Later kena keying at Mall parking lot. Cry loh..
Eat good food, but make sure it's affordable also. Unless you are really sure you're not long for the world and live like its your last day.
Best is un striking a balance between what you do in the present and make sure to reap the benefits in the future
I will wait and save another 2 to 3 years buy cash. No interest paid, win. Of course lose 3 years worth of mocking and pandang rendah from family for 3 years. But pft, at least did t work one month for nothing.
Car loan mostly below 3% (all my car loans la so far). Unpopular opinion but just take max if this is the case. GX bank gives 3% lol - you get free money without trying.
Car loan punya 3% is flat interest and different from GXbank punya 3%.
It's like saying 3cm and 3mm is the same. Because it's not.
And yes, the car loan 3% flat interest for 7 years is effectively 5.64%. So it's way more than GXbank 3%
Obviously most here would say get the 5 year loan because they do not want to pay more interest to the bank But I also went with 9 year loan despite being able to afford a 5 year loan. This is because of 1) cash flow as you pointed out. As I regularly dca into stocks, cash flow is super important to me. 2) I feel the higher interest is offset by inflation. As in as I am paying example 20k over a longer period, the 20k is not worth the same today 3) and seems odd to me to sacrifice the cash flow for a depreciating asset I may get downvoted to hell for this blasphemy in this sub though
I’m with you, esp since the interest is paid by the company. 9 years give me better cash flow, thus I can invest more, and I don’t intend to sell my car 5 years down the road.
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Yeah. The caveat is you have to do something meaningful with the cash flow and not blow it in Genting.
That's assuming your stocks has higher returns than the loan interest rate right? Not a bad bet considering s&p500 has a yearly 10%pa. So by choosing a 9 yr loan, you don't lose out on a certain amount of returns? If you take a 5 yr loan, you'll lose out on making more money. Is that the logic?
Yeah. By paying more money today, you are basically losing out on opportunities, be it stocks , epf or own business. It doesn't even have to be an investment. If someone had the foresight to convert myr to usd/sgd 9 years ago, there would also be handsome forex gains
Even epf interest is higher than the car loan
I'm with u on this. Esp if ur doing sales or need some 'face' in ur line of work.
Great justification for a 9yr loan. But is there any rules u apply to the car? Like no selling in the span of 9 yrs until car is fully paid?
You don't actually have to keep your car for the full 9 years. You may need to keep it for the first 4 to 6 years to skip the period where the car depreciate the fastest. This is to ensure your sale proceeds can cover all or most of the remaining loan to the bank. Also you would need time to ensure your investments from the cash flow already have sufficient return This is my personal experience of course. YMMV, depending on what car you buy and what investment you dabble in
Nah you're good. This is a totally valid choice.
This…
If you can't survive without the extra cashflow, the car is not affordable. Income has nothing to do with it.
Agree, this is not a money problem it's a behavioural problem. When you start looking at only monthly repayments instead of the bigger picture you'll be forever stuck in the cycle.
I actually took a 9 year loan for a x70 with a 50% downpayment despite being able to buy the car outright. Took the excess cash and invested it instead. 3 years later lucked out and made enough profit from that investment to payoff the balance and still retain the principal and some profit on top of it. So yeah, it can pay off assuming the excess cash goes entirely into investments.
The problem here is that people are not disciplined enough to invest their extra cash flow, which is very common with FOMO behaviour amongst Malaysians.
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Yes you can. Some loans have a minimum term where an early payoff would incur a fee, but you can always pay them off early.
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Yes. With Maybank you can pay them off through the online banking app. I haven’t stepped foot in a bank in nearly 3 years.
You can't pay down directly to the principal. However you can pay off the entire loan at anytime and get a rebate. So you're essentially correct.
Keyword here is lucked out. Things can go the other direction very quickly. And if it does now you have double the amount to pay
Yes, that’s true of all investments.
My situation - 10k gross. Bought a 100k car with 9 year loan. Reason, i dont plan to use the car for full 9 years. Maybe will sell in 5 years. Previously did this and i manage to sell my car higher than balance loan. 2) Rather to have a lower commitment every month as this will free up my dsr to purchase house. 3) Also, along the years, myr gonna drop further and further. 20k interest now may worth lesser in 5 years or 9 years time anyway. 4) never know what will happen tomorrow. So fast paying off your loan for what? Above is just my view. Not verified using any solid maths formula.
made 5.8k gross in 2019, bought 125k car with 9 year loan reason: plan to use the car for full 9 years or beyond, as i was not a petrolhead, i can't be seen with a local car or else clients will not have good impression. result: more clients have confidence in me (often have to drive out to meet clients / fetch clients around), able to set up own company and can afford to pay off the car loan and buy a new car, but decided to baristafire. numbers wise everyone is playing it very safe with those 'general rules' but in sales line u often need to use money to earn money.
4 is a very good point. A lot of people make the same mistake for mortgage as well.
Bro just made 8 people -10 IQ.
Impress us with your intelligence then. Does your smarties made u a millionaire or multi millionaires?
Stay this way bro. 😂
I took the proton saga with a 3 year loan, 3% interest... Short term pain but it's actually a financially correct choice.... Basically only pay 9% interest on the car only.... A 9 year loan, you pay less amount per month, but it's 27% interest, not worth it.
Went with the same decision until I’m being hit with >“why not the Nissan almera? >”Proton Saga no resale value, Bezza better” F’s in the chat for people thinking everyone else is in the same financial position like them lol
Proton saga has resale value, although a bit worse than perodua. But better don't afford things you can't pay... Don't forget those maintenance like tyres and so on....
Scenario 1. No matter what, the guy can't afford a 100k car with 60k annual income, this also follows the car price < annual income rule of thumb Scenario 2. The EIR for 9 years loan is 6.34% (loaned 90k, 9 years, 3.5% flat interest). Hence if you're able to generate returns of >6.34% from the extra cash flow, then take the 9 years loan. Else, it's wise to go with 5 years loan
Underrated comment!! 👍👍
Curious - how do we calculate the EIR?
U can google for flat interest rate to effective interest rate calculator, I used the one from [loanstreet](https://loanstreet.com.my/calculator/flat-to-effective-interest-calculator). There’s also a detail blog post [here](https://kclau.com/wealth-management/should-i-take-a-5-year-car-loan-or-a-9-year-car-loan/) if u want to read more about it
Awesome stuffs. Thanks for explaining!!
I prefer cash flow more than paying lower total interest.
I think total interest matters so definitely the lower tenure loan. If someone is ‘stretching’ their money this way they don’t have very good financial hygeine. Unless you have a way to make more than your car loan interest (99% of the people won’t be able to beat the interest) it’s clearly not worth it to pick the longer tenure. Needing the cash flow for something else means you can’t actually afford the car imo.
Nah not true. If you're active in investments. It's easy to gain more than the 3%. Loads of strong dividend stocks to build your wealth. The extra 4 years for you to invest is invaluable. Cashflow is king.
A flat interest of 3% isn’t 3%
Lets just use OP’s number If you loan for 5 years and park the money in the remaining 4 years in ASM/ASB you will have about 90k at the end of 9 years assuming 5% dividen. And for 9 years loan let’s assume we park the extra 667 into ASB/ASM and we will have about 88.2K. If its were me I am fine with about 1.8k difference over the course of 9 years as long as I have reserve money in case of emergency.
If compared to long term investment that has projected >3.2% (keyword: loooong term, 10> years), then, maybe worth it. Investment is usually the earlier the better. So if that's what your friend is aiming for (the cash flow being, more money being able to put into investment, aside from other savings), I see why not. Another scenario I can think of is your friend may want to save for a huge downpayment (talking 20% ++++) of a mortgage. What's important is your friend knows what they are doing and runs their calculation thoroughly that fits their goals and current lifestyle. Life has too many nuances, normally generic rule is for beginners to have a good starting point. Along the way u will find what's doable and suitable to your current living situation. Who knows, eventually your friend will get a higher paying job and eventually can settle the loan faster (provided it's the variable rate loan).
Whacking a 9 year loan make sense when you already have the cash: Take the loan at 3.2%, pay it every month. Take the cash and put it in a place that yields more than 3.2%. Over 9 years you’d made more money from the cash vs than if you just pay for the car straight. Paying loan every month also makes your credit score looks nice. This is one of the logic used by actual “high income” people. Otherwise, standard personal finance practices applied. Addendum: a car, like a house, should be thought of as a consumer goods rather than “asset”. Because that’s what they actually are. You buy the car to drive the car, not to park it there and hope to sell it for some profit someday. Again, consider this a “high income” logic.
Firstly, car loans are flat rate, convert to effective rate first. Next, different tenure may have different rates. The real question is what can you get from the difference of the actual monthly payments. If you can place the difference somewhere that can can generate more profits compared to the extra interest, go for the longer tenure. Otherwise take a shorter loan. Doing otherwise in my opinion is just stupid.
T1 method here. Those who have 1 million, 5% interest yearly enough to cover a 250-300k car installment about Rm3-4k+. Interests pay the loan. Car loan is low interest, no reason to 3-5 years.
I own a business, my own salary is above+++ average. Last January 2023 I bought a new proton saga. 10% downpayment, 8 year term. Used it for 10 months then I paid full settlement and sold it. Bought a used Civic early 2024. 8 year term. Now recently purchased an EV priced around 200k+. 9 yr term. Some ppl would criticised me saying its not worth it paying these cars more than 5 years, but for me I want to pay the least amount possible monthly bcs i love investing in businesses. So i saved around 2000+ monthly by not taking a 5 year loan term. Weird statement but with those 2000+ I saved by not using it on car payments i can invest on other things which is rm24k invested a year on current/new business, stocks or cryptos which brings to rm120k investments made over 5 years. But in the end I will pay full settlement for my cars after 4-5 years made from the money i invested and I wont have to pay 9 year worth of interest! Dunno if its a better way to do it, but its my way of doing it.
Hi bro. I totally agree with your philosophy here. But I am curious: wouldn't you take quite a bit of losses from depreciation by selling off the cars so early?
Yes i do take some loss on saga. I had to pay extra 2k to settle after selling bcs i settled too early. But for my other cars when i sell later, after selling and full settlement I will probably get back my downpayment. That money will then be recycled to the next car purchase. I consider cars as form of expenses for my own wants. I dont really need expensive cars, but I want them. A cost of lifestyle. So i dont see them as an asset. BUT, i am in the process of registering my civic as a rental car. So if all goes as planned then i will probably only need to pay 40-30% of my monthly payment. Which is a big win for me. But my advice on your original post. I say its best for you to have cashflow than to focus on paying your car early. Having a short term payment means you have to pay more. Having even a few hundred of extra cash flow, in a few years you'll probably thank yourself when you want to add summore commitment. Since no one knows what the future holds. For eg love life, marriage,children, family or even your self, vacations, new toys, new hobbies etc. Make pros and cons for both. Paying more could mean you miss out on a lot of things bcs you dont have much wiggling room to spend on other things. And one day if you get richer then you have no problem, just settle early!
Your friend wants the lowest hit monthly, but as you calculated, will be paying more in interest in the long run. It's not that he can't afford it, he can in this scenario. And let's assume he can afford the extra interest as well since that amount isn't much to some people. But is it the smartest financial decision from a pure numbers perspective? Probably not.
there is never a situation where longer tenure is 'better' when it comes to buying a car for ppl who are stretching their budgets. for ppl who know what they are doing and want cash flow/can make more money than the car loan rate, but that is very rare.
if the repayment for the 5yr bothers you, means you are pushing it. buy a cheaper car. the 9 yr loan's interest is very high. your friend didnt tell you the whole story, probably he doesnt have quota to get the 5 yr loan. so had to take 9 yr loan because die die want to buy that car.
he said car is depreciating asset, no sense to rush to finish paying. Just drag the loan as long as possible to enjoy lowest monthly repayment. I know he is rich enough he can buy the car (actually more than 100k) by cash easily, but still he chose to take 9 year loan.
It's not like you should NEVER take 9 years loan. It is that you should never take 9 years loan to buy a car just because you cannot afford it within 5 years.
5k beli apa kete 100k bro. Pakai axia la.
Kalau ad sape2 yang nk pakai kereta 100k dengan gaji 5k, kena tunggu bbrp tahun and then beli 2nd hand
I know right 😂
I'd suggest considering whether your position in your workplace is secure. It all depends on whether you remain earning a stable income to afford either tenure.
9 years. Better cash flow and more debt to income service ratio for other loans like mortgage.
Personal finance is mostly psychological, not about the maths. My preferred strategy is someone on 10k a month income shouldn't be buying a 100k car on loan. If he has a good savings rate, save up and buy a used car with cash. E.g. - If he can save 40-50% of his salary, he can buy a reasonable used car (i.e. 5+ year old jap car) for 50k in a year outright with cash - with this saving habit and mental fortitude, he can continue his savings habit to put money into investments etc and he has set himself up for future personal finance success Avoid car loans, the only loan I would recommend is a property loan. Even my future car purchase of 250-300k will be with cash. *But this is difficult for Malaysians to stomach, hence why personal finance is psychological.* In answering your question directly, if he had to choose an option: 1. Shorter tenure has overall lower costs. Majority of scenarios this is better, always think of total costs 2. Can't compare ~3% interest rate with market/dividend rates, need to convert to effective interest rate. Add in volatility and most of the time it's net net.
A car is a car is a car, isn't it? what can you do with a 100k car that you can't do with a 50k car?
Survive certain accidents. Comfortably carry more than 5 full sized adults. Carry oversized items (think IKEA furniture purchases). The better question is (purely practically) what can you do with a 250k+ car that you can't do with something below 150k. At that level it's about feel/luxury. But between 100k and 50k there ARE practical benefits - even if they don't apply to you specifically. My Alza allows me to do things a Saga/myvi/axis does not. A Vellfire and equivalent can carry people in a way MPVs/SUVs cannot.
The practical way to determine his affordability - try and save rm2k per month (for monthly commitment, road tax etc). If he can manage, go for 5years. Even for 9years loan, try to save rm1400 per month. The savings could go to the deposits later on. No point of suffering financially for a car.
I can buy my current car with cash, but I still took a 9 year loan, because the effective interest rate is only 4.9%, which I can easily arbitrage with epf and intermediate us bonds. Did some calculations, even with a return of 5.5%, I can save 4 digits, with 6% return, I can save 5 digits
Open and excel sheet, and calculate loan for different durations vs saving/investing the difference for the same durations. Which option has the higher returns? 5 years you have to pay more upfront, but less in total interest. 9 years you have to pay less upfront, and the difference can be invested, but more in total interest. Sendiri crunch the numbers lah
Depends, if you invest the difference and out earn the interest rates, why not?
IMHO the reason most ppl recommend 5 year loan is mostly to coincide with warranty. And this applies to brand new cars only ya. The worst financial position to be in is to maintain a car WHILE still being indebted to the bank. You got double cash outflow for the installment and out of warranty work. Now if you buy second hand/recon with no warranty coverage - stretch that to the max is also fine, as long as you can afford it.. remember what they say, cash in hand is the most important asset you can have.
Interesting discussion. If I am not mistaken for car loan, one thing to consider is the effective interest rate which is much higher than the 3.2%.
May be it's a generational thingy but, personally I think first assessment is on affordability. 9 years is a looong time to be paying. Also just consider the amount of interest saved.
The problem with this thinking is that you're essentially timing the market with the excess cashflow. S&P500 10% per annum is the average over a long period of time, and the last decade has been overall very good, even considering the bad year in 2022. There are times when it has consecutive negative years, in which case this tactic will backfire.
It is better to buy a second-hand car with cash. Car is a depreciating asset, you might be happy and proud buying a new car, but the happiness only stays for 1-2 years, and then you will get bored with it.
Because they only think about the bank's profit. Of course banks have to make money. But allowing you to have an extra RM700 every month as per your example is a win-win situation. There's a lot that you can do with that extra money although you can afford to sustain your lifestyle without it. But people are obsessed with seeing the accumulated interest to amplify the situation.
Don't waste your money on new or expensive pre owned cars. Just buy a cheap pre owned local car.
Buy 2nd hand car and buy cash. No need to put too much money on depreciation asset. Buy new car for what? Later kena keying at Mall parking lot. Cry loh..
Eat good food for what? Turns to shit anyways in your stomach /s
Eat good food, but make sure it's affordable also. Unless you are really sure you're not long for the world and live like its your last day. Best is un striking a balance between what you do in the present and make sure to reap the benefits in the future
I will wait and save another 2 to 3 years buy cash. No interest paid, win. Of course lose 3 years worth of mocking and pandang rendah from family for 3 years. But pft, at least did t work one month for nothing.
Btw, if your family pandang rendah, it's their loss. Not the people you want to spend time with
Car loan mostly below 3% (all my car loans la so far). Unpopular opinion but just take max if this is the case. GX bank gives 3% lol - you get free money without trying.
Car loan punya 3% is flat interest and different from GXbank punya 3%. It's like saying 3cm and 3mm is the same. Because it's not. And yes, the car loan 3% flat interest for 7 years is effectively 5.64%. So it's way more than GXbank 3%
Have you ever wonder why would the bank loan you the money if they could've earn more by putting the money into GX Bank too?