I have an argurment with my wife and she insist to make additional payment for her car by using her bonus. Her kelisa car still left about RM11k for 2 years.
Here is the TRUTH why we don't pay extra for CAR LOAN.
3. Do not make additional payment
“What don’t make any additional payment? Are you crazy?”
some might start to think I’m crazy. The reason is very simple; your additional payment won’t be reducing your hire purchase loan interest. You will only reducing your payment period, but not the interest at all. The next tip will make understand way making additional payment is a waste and teach a better way of making additional payments.
"Whatever additional payment, save them instead."
That’s right, if you are going to make additional payment, save that money in savings, fixed deposit or unit trust, whichever you are feeling comfortable with. Save them into something which could give a return with low risk. Then, when your saving amount is equivalent to your balance minus rebate, pay them off one shot.
Wife, i need it for my house loan.
1. Always take the shortest tenure
The reason is very simple, the longer your tenure is, the higher your effective interest rate will be. Remember that, hire purchase loan would calculate your interest using the borrowed amount multiply the number of years, which will increase your effective interest rate. Not just that you’ll be paying a very high interest in the first year itself.
2. Take the least amount of loan possible.
I have come across many car dealer advertising ‘0% down payment’ or ‘100% loan’. Some who might have some additional cash to pay for down payment would just take the 0% down payment offer. He might even be proud that he doesn’t have to put any money to buy the car. But, the effect is huge. With the amount of effective interest you’ll be paying, you’ll be losing in interest. If your loan interest is 5%, a $5,000 down payment would save you $1,250 for 5 years tenure and $1,750 for 7 years tenure. So, take the least loan.
4. Pay at the end of grace period/due date.
You''ll be usually given 7 days period from billing date or beginning of the month to pay your installment. Many might even pay them on 1st day itself. Some might pay them even before the beginning of the month. By paying earlier, you are not gaining anything, as you are not reducing interest. In fact you are only helping the bank. So, try to pay at the end of grace period around 6th or 7th day. (Just don't exceed your due date)
Source: http://moneyburp.blogspot.com/2008/12/maximize-your-money-hire-purchase-loan.html