Early Redemption Clause

[Thermodynamics]

Hi all

 

I wish to seek advise on the following.

 

For hire purchase agreement, there is a clause for early redemption saying:

"For early redemption of hiring for passenger cars, rebates on interest are calculated based on 80% of the "rule of 78"."

 

May I know exactly what does it mean? Lets say if I take a loan of $74000 for 10 years @ 2.75% p.a. under worse case scenario. If I redeem the loan fully after either 1 or 3 years, how does this clause affect me in anyway?

 

Need your help please. Thanks!

[Ninjasun]

go to this website to calculate it. http://www.hughchou.org/calc/rule78.cgi

not sure how to use it too

 

but the 80% that was mention means that there is a 20% penalty. I was told by SE that DBS has the lowest penalty, think it 6 or 8%, cant recall...

[Upandcoming]

The Rule of 78 is used for car and other installment loans. It is a method of allocating a loan's interest and principal.

 

The Hire Purchase Act requires use of the rule of 78 for car loans where the car is valued at less than $55,000 without COE. (This is about $83,000 with COE.)

 

The rule applies most of the installment payments in the early years of a loan to payment of interest rather than principal.Therefore, if you repay a 10 year loan in just 3 years, you will have 7 years of principal to repay.

 

As you did not use up the 10 years of loan, you can get an interest rebate on the interest incurred using the formula:

 

Rebate of interest = [(n (n+1)) / (N (N + 1))] x TI

 

(n = the number of months remaining on the loan; N = the total loan period; TI = the total interest charged over the period of the loan)

 

say after 3 years...

 

[(84(85)) / (120(121))]x $20350 = $10196.4 worth of interest rebate.

but ur penalty is 20% which is 80% of I.R = 0.8x$10196.40 = $8157.13

(where 20350 is 0.275x 74000 = 20350 which is total interest charged)

 

therefore outstanding is 0.7 (which is 7 of 10 years) x $94350 (total loan) = $66045

and after deducting your eligible IR = $66045 - $8157.13 = $57887.87

 

PLEASE do note there might still be admin charge etc...so do read the fneprint..hope this helps... covered before topic though

Edited March 19, 2008 by Upandcoming

[Sniperben]

6%. interest rate @ 2.5%.

[Thermodynamics]

Wow! Your explanation is very clear! I understand the issue now. Thank you very much.

[Thermodynamics]

Is the penalty determined by the loan amount?

[Chongster]

basically the rule of 78 is itself a penalty (because you never use the loan for full tenure). govt says removing its compulsory application means that we can all negotiate a better deal with the banks.

 

instead the banks band together to screw our backside with bigger dildo

[Nethdale]

Try to play with http://www.hughchou.org/calc/rule78.cgi, after keying all information like "loan amt" "mthly payment" and "nos of mths", d software will show a table below consists of 3 things, but what I'm don't understand is the line says "For 120 months, the magic rule number is 7260". What is the meaning of magic rule nos is 7260? Where to hunt for it in the table?

 

Can expert highlight to me? Thank you very much.

[Ninjasun]

nope... its the bank that decide... I think previously there was no penalty for small cars, but now all have and the norm is 20%... think the lowest is 6% for DBS :)

[Smurfy76]

thks bro.. I nvr actually understand the rule of 78 till ur clear explanation.

Edited March 20, 2008 by Smurfy76

[Thermodynamics]

6% penalty only? That is very low. Sure accompany some terms and conditions. I do not think banks are that friendly people.

[Upandcoming]

yea...actualy lst yr end i understood Citibank and Hong Leong is after1st year or smthng no penalty le..Int rate then as 2.5%

[Upandcoming]

no worrie we r all hee to share n share =) have a great day

[Sniperben]

balance loan amount and tenure.

[Kinetics]

Hi

Sorry to butt in. THinking of redemning also but read my UOB loan. It says within 1st year got 1% penalty of the loan amount. So on top of that, also got that 20% penalty of the rebate? This was mentioned elsewhere but not together. ANyone can clarify?

[Nlatio]

seriously, all these number make one go ........ end of the day, you just want to know how much you need to pay back...... since they (the bank) already making our $$$ and screwing us with the interest..... just pop by and ask them.... they should be able to tell you how much to pay..... make them do the work for you lar....

Edited March 20, 2008 by Nlatio

[Zanter]

After u buy car on 10 year loan then now u look @ fine print har?

 

Why i dislike borrowing money from bank/finance co for carloans is precisely this reason. All they wanna do is screw us hard! Earn our interest is not enuff. Wanna escape screw us again!

[Ninjasun]

think my SE told me there is no or minimal penalty for smaller car <1600cc. actually its more on the amt of loan, think the 20% apply for loan >55k