Why you should NEVER do $0 driveaway or 10 years loan

[Kopites]

9 hours ago, Ct3833 said:

There is nothing wrong with your case of taking loan and neither his case of full cash,  but i am curious where to find a FD that offers a higher interest than car loan interest ?  Many full cash MCFers are waiting for that, other than full cash for cars , they still have a lot of full cash waiting to put in high interest FD.😅

I just topped medisave for me and wife so to make our 2021 63k ceiling. 6%

Let me know better rate out there.

🤣

[Ct3833]

12 minutes ago, Macrosszero said:

Come I do the math for you

Mandatory loan was 50k for 5 years at 1.99%. 

Rebate was $1500.

The plan was to take that 50k to a CIMB fixed deposit for a year at 1.85% and redeem the loan after a year. This was for late 2019.

Interest incurred at the end of year 1 would be $995 + 20% of the remaining 4 years’ interest under rule 78 which would be $796 for a total of $1791.

Taking the rebate ($1500) and adding the $925 earned from the 1.85% FD I am up $2425 as opposed to the interest and penalties incurred from taking the loan for a year and then ending it early.

Its not a lot, but if it’s there, why not?

You are correct but today no such FD offer anymore, even have a little higher than 1%, are also being capped at 20k or there about.  If there is a choice , take a housing loan instead and use the cash to contra  it with other financial instrument, just make sure one have sufficnet money to repay the loan in case the investment does not turn out according to plan. 

[Kopites]

Imo it doesn't matter getting a new or resales (do home work).

Depend on your capability pay up as it is merely your transportation from A to B. Why take loan!

Transportstion also need to assume credit liability?

[BobbyTan_74287]

22 hours ago, ferrytales said:

Been seeing alot of dealers offering such promotions to unknowing customers or customers whom are financially unsound.

This is the WORST decision you should NEVER ever make as people tend to get tempted only by looking at the monthly instalment. There are some hidden sums that people are unaware of and the interest accumulated is absolutely insane. You will be STUCK few years down the road if you decide not to keep the car and sell it off unless you have $$ to pay off your outstanding loan.

You need to have $0 outstanding loan to do a transfer of car ownership (ignoring whatever grey areas possible).

'Disclaimer: The numbers are for illustration only and by no means an accurate reflection.'

__________________________________________________________________________________

Let me give you an illustration based on the conditions below. 

1. You get excited at this $0 driveaway promotion + 10 years loan and decided to buy a car @ $100,000 with parf value @$2500.

2. Loan interest rate est. 3% pa and you decided to loan for 10 years.

3. Now its time to do the sums!

Car Purchase Price: $100,000

Interest incurred @ 3% pa: $100000 * 3% * 10 years = $30,000 [YES IT IS $30k]

Total Cost: $100,000 + $30,000 = $130,000/-

Monthly instalment: $130,000/10years/12mths = $1084/mth

__________________________________________________________________________________

3 Years Later

So you've made the purchase and happily drove off but 3 years down the road, you had a change of mind and decided to sell off the car. Based on an estimated trade in price at a depreciation of $6.5k from dealers and now lets do the sums again.

Trade in price: ($6500 * 7 years remaining) + parf value of $2500 = $48,000 + $5,000 (token sum from dealer) = $53,000

Outstanding loan (before rule 78): $13,000 * 7 = $91,000

With a trade in price of $53,000 and outstanding loan of $91,000, you have to fork out $38,000 to clear off the loan.  

__________________________________________________________________________________

5 Years Later

So you've made the purchase and happily drove off but 5 years down the road, you had a change of mind and decided to sell off the car. Based on an estimated trade in price at a depreciation of $6.5k from dealers and now lets do the sums again.

Trade in price: ($6500 * 5 years remaining) + parf value of $2500 = $35,000 + $5,000 (token sum from dealer) = $40,000

Outstanding loan (before rule 78): $13,000 * 5 = $65,000

With a trade in price of $40,000 and outstanding loan of $65,000, you have to fork out $25,000 to clear off the loan.  

__________________________________________________________________________________

7 Years Later

So you've made the purchase and happily drove off but 7 years down the road, you had a change of mind and decided to sell off the car. Based on an estimated trade in price at a depreciation of $6.5k from dealers and now lets do the sums again.

Trade in price: ($6500 * 3 years remaining) + parf value of $2500 = $22000 + $5,000 (token sum from dealer) = $27,000

Outstanding loan (before rule 78): $13,000 * 3 = $39,000

With a trade in price of $27,000 and outstanding loan of $39,000, you have to fork out $12,000 to clear off the loan.  

__________________________________________________________________________________

Hope this post and sharing will help as many people as possible to not fall into the debt trap for the sake of owning a car. These sums are already relatively conservative for illustration purposes. 

I ever took a 10 years loan and drove my car until 10 years. Then scrap and bought another new car with 5 years loan.

[Macrosszero]

44 minutes ago, Ct3833 said:

You are correct but today no such FD offer anymore, even have a little higher than 1%, are also being capped at 20k or there about.  If there is a choice , take a housing loan instead and use the cash to contra  it with other financial instrument, just make sure one have sufficnet money to repay the loan in case the investment does not turn out according to plan. 

Sigh. You are missing the point - all I am saying is, do the math and decide which option is best for you, don’t buy, buy and take a loan or buy at full cash.

I use the FD as an example but some guys may generate better returns from 50k if they had put it all into DBS stocks in Feb/March 2020 and liquidated it this year at  20% profit gain for 10k. They would have handily outperformed the FD as well as the loan several times over.

Edited January 25, 2021 by Macrosszero

[Jamesc]

Prudent people don't buy new car.

They buy used cars from jamesc good quality used cars at affordable prices.

This is for information purposes only and not an advertisement. Advertisement have to pay one lah. I no pay.

Edited January 25, 2021 by Jamesc

[Voodooman]

27 minutes ago, Macrosszero said:

Sigh. You are missing the point - all I am saying is, do the math and decide which option is best for you, don’t buy, buy and take a loan or buy at full cash.

I use the FD as an example but some guys may generate better returns from 50k if they had put it all into DBS stocks in Feb/March 2020 and liquidated it this year at  20% profit gain for 10k. They would have handily outperformed the FD as well as the loan several times over.

If you are willing to take risk, you can beat even ah long's rate.  Still remember my friend's sunshine empire investment. Happily took loans to invest. 

Anyway, i understand what you are saying. The rebate has pushed many  people to take more loans than necessary.

 

[kobayashiGT]

I think there is 2 spectrum of ppl in this world.

One that can only see that he is paying $1084/mth, and he finds that that fits his current financial status.

Another kind is They will only willing to pay what is worth it. They have a greater sense of financial literacy.

[Mazdaowner]

17 minutes ago, kobayashiGT said:

I think there is 2 spectrum of ppl in this world.

One that can only see that he is paying $1084/mth, and he finds that that fits his current financial status.

Another kind is They will only willing to pay what is worth it. They have a greater sense of financial literacy.

Hmm...I donno which I fit into. Just go showroom, open car door, sit inside for 5 mins, step out give IC to SA. That is one main reason my wife will not allow me to go to any car showroom or car exhibition. 

[ferrytales]

1 hour ago, BobbyTan_74287 said:

I ever took a 10 years loan and drove my car until 10 years. Then scrap and bought another new car with 5 years loan.

I think in the past in pre-2010 when coe was 10k and low i/r, I guess it made sense but not for now I guess. 

2 hours ago, Macrosszero said:

Come I do the math for you

Mandatory loan was 50k for 5 years at 1.99%. 

Rebate was $1500.

The plan was to take that 50k to a CIMB fixed deposit for a year at 1.85% and redeem the loan after a year. This was for late 2019.

Interest incurred at the end of year 1 would be $995 + 20% of the remaining 4 years’ interest under rule 78 which would be $796 for a total of $1791.

Taking the rebate ($1500) and adding the $925 earned from the 1.85% FD I am up $2425 as opposed to the interest and penalties incurred from taking the loan for a year and then ending it early.

Its not a lot, but if it’s there, why not?

1 hour ago, Macrosszero said:

Sigh. You are missing the point - all I am saying is, do the math and decide which option is best for you, don’t buy, buy and take a loan or buy at full cash.

I use the FD as an example but some guys may generate better returns from 50k if they had put it all into DBS stocks in Feb/March 2020 and liquidated it this year at  20% profit gain for 10k. They would have handily outperformed the FD as well as the loan several times over.

This is true as well but the crux is not to over leverage. ADs are offering 1.88%/1.99% car loans nowadays which ain't too bad based on your analogy cause I do that too. Do a short loan and use the balance cash to invest as long as returns more than 2% and it makes sense. My friend recently bought an used car from Select and got 1.99% for his used car loan as well. 

The point of my example was $0 drive away and full loan, which meant you are paying 30k to borrow 100k and after 10 years you've returned 130k. 3% doesn't seem exorbitant but once you do down to the numbers, it's scary. 

Not many people are that savvy in terms of investing and if they are that good, they wouldn't have to consider such schemes to begin with cause car is a depreciating asset. I will rather take a high loan for my house cause that could be an appreciating asset as opposed to a car. 

Then again, might as well say if we had used the money for the car to invest in tesla stocks, we will be able to buy a tesla with the returns from its stocks already. 

Edited January 25, 2021 by ferrytales

[kobayashiGT]

2 minutes ago, Mazdaowner said:

Hmm...I donno which I fit into. Just go showroom, open car door, sit inside for 5 mins, step out give IC to SA. That is one main reason my wife will not allow me to go to any car showroom or car exhibition. 

the more you sit, the more you buy!!!! hahahah.

[Mazdaowner]

9 minutes ago, kobayashiGT said:

the more you sit, the more you buy!!!! hahahah.

The Sales lady who was serving me was and is still CMI and KNS. My mind was on the car. 

[kobayashiGT]

1 minute ago, Mazdaowner said:

The Sales lady who was serving me was and is still CMI and KNS. My mind was on the car. 

Hahaha. Lucky this year no motorshow. If you sit one end to the another, I dunno how many cars will be at your carpark. hahahhaha

[Enye]

12 minutes ago, kobayashiGT said:

the more you sit, the more you buy!!!! hahahah.

wah mod....what happened to keeping mcf classy and no uncouth postings? 😅

anyway my advice to this sales lady to change to selling mattresses instead of cars.  she will huat until buay lin choo.

🤣

[Dinofied]

Hi, What about those ADs Offering 'pay interest only for 1,2,3 years' ? Any opinions or thoughts ?  I saw alot of ADs offering those schemes. 

[Rickster]

16 hours ago, thebutcher said:

Bro, with this logic, the whole of singapore must really consider the stability of our incomes before getting a house. 

I think the other bro say that because car is a fast depreciating, unlike housing, you don't usually loose 20-30% after 2 or 3 years ownership.

[Philipkee]

17 minutes ago, Rickster said:

I think the other bro say that because car is a fast depreciating, unlike housing, you don't usually loose 20-30% after 2 or 3 years ownership.

A lot of people dont realise.  A car can be an asset.  It's just not a financial one

It's an asset that can improve your quality of life.  That is why people want to get a car even if they might have issues affording a car.

[Mazdaowner]

48 minutes ago, kobayashiGT said:

Hahaha. Lucky this year no motorshow. If you sit one end to the another, I dunno how many cars will be at your carpark. hahahhaha

Won't lah, go OG buy Tomica niah. I cannot afford new car. Poor mah.