Living Tips For Malaysians

This is a MAGIC on how I can save big money by fully settled my car loan from home loan! I didn’t pay any extra single sen but I managed to save RM4,861 for my car loan.

You should know that the interest of Home Loan is reducing rate and Car Loan’s interest is fixed rate. It means, when your Home Loan’s outstanding amount reduced, you are paying less interest. But your car loan’s interest will remain unchanged from day one until you settle your car loan.

I have shared with you on how to save the interest of car loan by “full settlement” in my previous post. Here’s another tip to teach you how to fully settle your car loan in case you don’t have extra cash, just like me.

I just settled my car loan last Friday. I took the car loan from Maybank for 7 years repayment term with 3.9% interest. I have been paying monthly installment RM600 for 3.5 years; means I have balance 3.5 years to settle my car loan. I don’t have cash for full settlement but I used my Flexi Home Loan’s money to settle my car loan. So, you might want to know whether it is worth to do so? The answer is absolutely “YES”!

Here’s the calculation on my saving for my car loan:

My outstanding car loan amount: RM24,000
Balance repayment period: 3 years 6 months
Full settlement amount: RM21,500
Rebate from interest: RM2,500

So, I have extra RM600 cash every month now and I use this amount to payback to my Flexi Home Loan account since I treat it as “loan” or “refinance” from my Flexi Home Loan account.

It means, I just need 3 years to payback RM21,500 with RM600 installment per month instead of 3.5 years. I saved 6 months installment because if I continue to pay my car loan, I need to pay RM600 for balance 3 years 6 months but now I just need to pay RM600 for 3 years only into my Flexi Home Loan account. So, I saved 6 months’ installment or RM3,600.

However, since I used Flexi Home Loan cash to settle car loan: RM21,500, I have to pay for the home loan interest because I withdraw cash from my Home Loan account.

Since I will bank in RM600 to my Flexi Home Loan account every month, my “outstanding loan amount” from Flexi Home Loan account will be getting lesser or reducing.

Calculation on Additional Interest due to Withdrawal from Flexi Home Loan:

Flexi Home Loan interest: 3.75% per annum
Interest for first year: RM683 (based on 3.75% reducing rate as I continue bank in RM600 every month)
Interest for second year: RM413 (reducing rate)
Interest for third year: RM143 (reducing rate)
Total interest for withdrawal of RM21,500 from Flexi Home Loan (3 years) = RM1,239

Calculation on saving:

1. I saved RM3,600 being the balance monthly installment (RM600) for 6 months
2. I saved RM2,500 being the rebate from interest
3. I pay RM1,239 being the interest for withdrawal of Flexi Home Loan

So, Net Saving: RM3,600 + RM2,500 – RM1,239 = RM4,861

Last but not least:

I used HSBC cheque to settle with Maybank and it needs 3 days for cheque clearance. I need to go to Maybank again this Friday with my “geran” to cancel the ownership from Maybank and change it to my name, that’s the last step.

You don’t save any single cent by paying extra every month in order to settle your car loan early! But you can settle your car loan early and earn interest from FD and rebate from bank by “Full Settlement.”

I financed RM20,000 to buy a Proton Saga in 1999. The interest for car loan was 7.6% at that time, very high but lower than few months before I took the loan. I signed up six years repayment term and paid RM404 as monthly installment.

How to calculate the monthly installment for car loan?

Loan amount: RM20,000
Interest: 7.6%
Term: 6 years
Interest amount per year: RM20,000 x 7.6% = RM1,520
Interest amount for 6 years: RM1,520 x 6 = RM9,120
Monthly Installment: (RM20,000 + RM9,120) / 6 years / 12 months = RM404

I have to drag for 6 years because I was afraid I couldn’t afford to pay more due to other commitments. But when I got my yearly increment, I kept the excess money in a separate account as “advance payment” for my car loan. I didn’t use the excess money to pay to the bank every month as advance payment but just kept it in Fixed Deposit. I accumulated it until the amount was equivalent to the outstanding amount of my car loan. I withdrew it and paid as “Full Settlement” of my car loan. It took me 3 years 6 months to settle my car loan although I signed up for 6 years.

Here’s a question: Why I kept all “excess money” in FD but didn’t pay to bank every month since it also can settle my car loan early? I don’t save the interest if I pay “advance payment” every month but I saved some interest when I fully settled the loan, they are different!

It means, by paying extra money to bank every month, I will take 3.5 years to settle my car loan also but I don’t save the interest, my interest paid is still RM9,120.

However, when I paid lump sum as full settlement, the bank will “rebate” the interest to me. I can’t really remember how much was it but it was around RM2,000 plus. It means the actual interest paid for my entire car loan was around RM7,000 instead of RM9,120.

So, remember, if you want to save some interests on your car loan, settle it early by full settlement; keep your extra money in FD to gain some interest while accumulating the amount for full settlement. You gain nothing if you pay extra payment to bank every month for early settlement.

You can always call to bank to check your outstanding amount; ask the bank staff, how much you need to pay if you want to make full settlement, then you will know how much you can save on interest.