Help: Rule78 bank loan matters.

[SimonTan]

Need some expert analysis on this matter.

 

Was at the CATs carnival and intend to get a Honda car. Pretty good price on Honda Jazz 1.5A $77k.

 

The SE says ONLY if I take a loan of 7 years, then the car will comes with 3+2=5 years of warranty and 3 FREE servicing.

The bank loan interest is 1.99%.

But if I were to take only 4 years loan, then it will only be 3years factory warranty and NONE free servicing(have to pay myself for the first 1000km and subsequent ones)

 

The question I want some answers is Assuming a 50k loan of 7 years vs 4 years....what is the advantage of gaining the 2 extra years of warrranty and 3 free servicing?

 

What is the differences should I take 7 years loan and then do a full redemption at the 2nd year or take a 4 years and full redemption at 2nd year?

 

7 years loan for $50k

Total owe amount = $50k + 7*1.99*50k =$56,965

Monthly = $56965/84 = $678.15 monthly

After 24 months of payment bank loan remaining will be = $56965 - 678.15*24 = $40689.3

 

4 years loan for $50k

Total owe amount = $50k + 4*1.99*50k = $53,980

Monthly = $53980/48 = $1124.58 monthly

After 24 months or payment bank loan reamining will be = $53,980 - $1124.58*24 = $26,990

 

Now the mian question is how much the bank will want for the full settlement for the two cases? Will it be the exact figure remaining or is there a rule78 discount?

I dont understand the rule78(if the bank still practice it), and I want to learn it before I go book the car this week!

 

Will taking the 7 years loan be more worth it to cover the first three servicing costs? (lets not discuss in the extra two years of warranty, as I am not concerned about it, as I intend to sell the car after 3-4 years)

 

Assuming 1000km is $200, and 5000km is $200 and 10000km is $300. Total is ~$700.

Will taking the longer loan cover the servicing cost vs taking a short loan?

 

Thanks for any guidelines or advice.

 

 

 

 

[Perrier]

I see that you are going quite detailed into the costing.

 

Diff in interest itself is already ard $3000 as per ur calculation.

 

You can google for the formula for rule 78. It will tell you exactly how much interest you are entitled to get back when u want to fully redeem or sell ur car at whatever months u choose. You will then know how much of your monthly installment is used to pay off the interest vs the principle loan.

 

On top of that, a normal practice is that the bank will only pay you 80% of that rebated interest due to administrative work.

 

e.g interest rebate is $10,000 you only get back $8000.

[Seaweed]

if your intention is 4 yrs loan..and you are going to sell the car in 4 to 5 yrs....then no point taking the 5 yr warranty in the first place...the interest payable between 4 yrs loan and 7 yrs loan also too much difference after factoring in the servicing and warranty...i would go for 4 and forgo the carrots...but if it is something like 6 vs 7 then maybe just go for 7...but 4 vs 7...stick to 4... just my opinion...

[Naruto13]

still 08 1.5 jazz right for the price u listed 77k?

 

got ask about maybe 09 or 10 jazz? provided they even have stock. just want to know thats all.

 

u know price for 1.3 too?

[Naruto13]

http://www.dbs.com/sg/personal/loans/auto/default.aspx

 

dbs got the example.

 

 

Edited July 12, 2010 by Naruto13

[SimonTan]

http://www.------.com/pdb/carloan.php?pid=124

 

According to this calculator (I hope its correct!!), it seems that if I redeem the car loan at 3years...the differences between the two loan will be ~ $1000.

 

Meaning the TOTAL cash( 36monthly + the final redemption) difference out of my pocket is around $1000 higher for the 7 year loan.

Over a three year period, paying $1000 more, in return for the 3 free servicing plus the additional 2 years Kah warranty!

Seems like a zero sum game for my case.

But my thoughts, since the first 3 important servicing is done at KAH, any warranty issues I can 100% push it to KAH to settle.

Also the 2 additional year of warranty might interest the next car buyer. Dealers will not care, but if can sell to private buyer, maybe the next owner will feel more secure to get my car at the 3rd year?

 

Anyway....the SE is asking me to go down to sign immediately as the free insurance offers(up to $2000) he can only back dated it one day just for me!

Since CatA drop ~$2000, Honda maintained price but offers free insurance.

 

 

 

 

 

 

[Kar_lover]

 

Short answer is forget abt taking additional loan just for the freebies. Not worth it for sure. Future buyer of ur car also won't give much weightage on ur additional insurance. they just want to get the best price. anything more is just a bonus. there are so many parameters when selling a car. maybe u got a bit additional warranty but another guy maybe mileage only half of yours or he got mugen exhaust ot watever. watever money u can save now just save. the only thing is sometimes the price of the car is based on minimum 70% loan for 7 years. If u loan less than dat, may have surcharge. u may need to check dat part.

 

By the way even the "free 3 servicing" usually refers to labour is free, u still need to pay for the engine oil. And even if EO is free, first 3 servicing is minieral oil, $50 only each time.

 

R78 is based on ur outstanding loan, the higher u loan, the higher your outstanding. Their admin charge/fees also based on outstanding loan, the more your outstanding, the more the fee.

[SimonTan]

Honda SE says first 3 servicing totally free for minimum $40k 7years loan. Thats is why I come here to ask about the rule78 and some opinion.

 

I totally agree its always best to take the minimum loan at minimum years.

But Kah wants to add in this mathematics twist to the sales, so lan lan have to re-learn the rule78 and get opionion from experiences guys here.

 

Normally I would just take the minimum 4years loan to make the SE happy as he gets to earn his 1% loan commissions, and I get some extra freebies from his comms lah.

Live and let live.

 

 

 

 

[Carer]

Simontan, u talk until live and let live.. got dragon got phoenix, in the end u care so much about the $1k difference.. typical singaporean.

 

what is $1k compared to the car price? wan to buy car but calculate till like that. hahhahaha what a joke!

[SimonTan]

Haiz....SE pushing me to sign by today.

So have to do extensive research before I get it to make sure I know what I am getting into.

Its not that I am counting every penny, I actually just want to know as much of the buying situation so as to be comfortable with the car for the next 3 years.

 

 

Servicing cost from the Honda website

$145 - 1000km

$239 - 10,000km

$271 - 20,000km

total = $655.

 

 

Taken from Honda sg website!

 

A regularly maintained vehicle will perform better and smoother than a vehicle that is serviced irregularly. We have specially designed a Honda Vehicle Service Maintenance Packages using Shell Helix Ultra Synthetic Engine Oil to increase the Service Interval at every 10,000km or 6 months instead of the commonly practice Service Interval at 5,000 km or 3 months.

 

This extension of Service Interval at every 10,000km provides Honda owners the convenience as it saves them time and money. Based on the average drivers in Singapore, the average annual mileage a vehicle would normally clocked is about 20,000km. Therefore Service Interval at every 10,000km means Honda owners have to service their vehicle only 2 times a year instead of 4 times a year.

 

[SimonTan]

Spending money also must know which component the monies go to, at least thats my character.

I agree to some of you guys, my posting might be a joke. Buying car is for sure losing money, many may say, why worry over a small sum?

 

But for an accountant by training like me, its just my nature to understand the matter more before buying the car.

 

Maybe many people did not take effort to take the half day effort to do some investigation before buying the car.

Some take up 10 years loan, some trade in cars at lower price to car dealers, some take up too much loans, some fell prey to the free insurance and 3+2 warranty, etc.

 

Come 3 years later when its time to sell the car, the $$$ losses might be $1000 or more. Are car buyers prepared for it when they redeem their car loans?

 

But with understanding, I hope I am able to manage my finance situation within my means and with insight what I am getting into for this new car.

 

 

Simontan, u talk until live and let live.. got dragon got phoenix, in the end u care so much about the $1k difference.. typical singaporean.

what is $1k compared to the car price? wan to buy car but calculate till like that. hahhahaha what a joke!

 

[Galantspeedz]

all you need to understand is... it will alwys be a zero sum game.... thus go for the least sum and shortest loan.... especially if you be selling it before your loan is up....

 

as for the technical details... it will be too much of a hassle to teach you, at least not on forum....

[Perrier]

http://www.------.com/pdb/carloan.php?pid=124

 

According to this calculator (I hope its correct!!), it seems that if I redeem the car loan at 3years...the differences between the two loan will be ~ $1000.

 

Meaning the TOTAL cash( 36monthly + the final redemption) difference out of my pocket is around $1000 higher for the 7 year loan.

Over a three year period, paying $1000 more, in return for the 3 free servicing plus the additional 2 years Kah warranty!

Seems like a zero sum game for my case.

But my thoughts, since the first 3 important servicing is done at KAH, any warranty issues I can 100% push it to KAH to settle.

Also the 2 additional year of warranty might interest the next car buyer. Dealers will not care, but if can sell to private buyer, maybe the next owner will feel more secure to get my car at the 3rd year?

 

Anyway....the SE is asking me to go down to sign immediately as the free insurance offers(up to $2000) he can only back dated it one day just for me!

Since CatA drop ~$2000, Honda maintained price but offers free insurance.

 

wah. then u better hurry down to sign. Half day is already gone.

 

by the way, what will be the paper value when u decide to sell it on the 3rd or 4th yr? interested to know how much is the OMV your SE quote you.

 

thanks

[Zxcvb]

Hey Simon,

 

First of all, don't ever fall into the tricks and pressure of SE to sign the papers "by today", "by this week", "offer only today", "freebies only this week" and so on!!! It's the usual tactics!! Last time i buy car also the same, test drive so many cars, tell them decide later, next day SMS all lai liao!!! Offer this, offer that if i sign by this week. If not, will loose out. KNN!!!!

 

But I took my time lah.

 

Anyway for your question. if you intend to sell the car in 3/4 years time, take the minimum loan lor. The extended warranty seriously nobody cares much about it. And only if you go Kah Motors for servicing everytime from start till end. And if hand over to the 2nd hand car buyer, you think he will continue going to service the car at KM to continue the extended warranty??

 

Don't be penny wise, pound foolish.

 

 

[Robo]

intl based on 2 yrs is $1990.

 

qn is do u require e additional 2yrs warranty? if u dun then saving on interest is more than enough for servicing. the remaining can be spend on alot of petrol.

 

also SHU is bad.

[Darryn]

The "freebies" that Kah are offering will be paid out of the commission they earn from the bank. That commission comes from the money you are giving to the bank. So sure one you will lose out. Take the shorter loan.

 

And further, I agree - the "freebies" are just a sales tactic, don't be sucked in!

 

By the way, the way Auto loans are calculated is really b-------t. By rights should be "monthly rest" calculation. The way it is currently done is out of bad practise from the 60s, so backwards and cut so many carrot head.

[Robo]

yea i agree it should be calculated based on reducing balance method. not the straight line method. its simply crazy

[SimonTan]

Thanks for the advice so far.

 

I need to replace my old car anyway.

 

No pressure to sign. Just hope to sign the car before the next COE bid where the quota will be further cut.