We had an article “Buy car with cash: good or bad?” to compare how the money appear and disappear when a person buy a car with cash or with auto loan. That calculation is base on the car loan system in the United States. Here we have another calculation based on the car loan system in Malaysia and some other countries which have the similar system including Singapore, Indonesia, Thailand, and among others.

Calculate a monthly car payment in Malaysia

Before we start to explain the myth, let’s see how the car loan system works in Malaysia. Calculate the car loan formula is very simple and straight forward. It can be done without even have to use the calculator. The formula is as simple as:

Monthly car payment = (Loan amount x IR x Term) + Loan amount / Total financed month

Loan amount = The amount of the money borrowed from the bank or creditors. For example, if the car is RM100,000 and you pay a down payment of RM20,000, the loan amount will be RM80,000.
Interest Rate (IR) = Interest rate from bank, creditors per year.
Term = Total number of years for the loan
Total financed month = Total number of months for the entire loan

For more information, see how to calculate a monthly car payment in Malaysia.

Case Study 1

Unlike in the US, RM20,000 to buy a new car is almost impossible and no way happen in Malaysia if compare dollar for dollar with the U.S. Therefore, here we take a RM100,000 car to compare the calculation.

Considering you are saving the RM100,000 in any banks that gives a return on investment of 3.5%, each year you are making RM3,500. The formula of how the money will go in the next five years:

• Cash paid for car: RM100,000
• Cost for car loan: RM0
• Earning lost on cash: RM100,000*3.5%*5 years = RM17,500.
• Total cost of the car: RM117,500

What if you keep the RM100,000 in the same place and take up a car loan?

• Cash paid for car: RM0 (Consider go for full loan in this case)
• Cost for car loan: RM100,000*3.5%*5years = RM17,500.
• Earning on cash: RM17,500. In this case, earning on cash did not lost because the golden goose still alive.
• Total cost of the car: RM117,500 – RM17,500 = RM100,000

Here you place RM100,000 in bank with 3.5% ROI. On the other hand, you take a RM100,000 loan from bank with 3.5% interest a year. Sounds like you are borrowing your own money? Sound stupid? So use cash to buy the car? However, the calculation above shows that you are actually save RM17,500 over five years.

Case Study 2

Everything remained the same, this time, you are going to a car loan for 7 years and you found a car loan with lower interest rate at 2.88%.

• Cash paid for car: RM100,000
• Cost for car loan: RM0
• Earning lost on cash: RM100,000*3.5%*7 years = RM24,500.
• Total cost of the car: RM124,500

What if you keep the RM100,000 in the same place and take up a car loan?

• Cash paid for car: RM0 (Consider go for full loan in this case)
• Cost for car loan: RM100,000*2.88%*7years = RM20,160.
• Earning on cash: RM24,500. In this case, earning on cash did not lost because the golden goose still alive.
• Total cost of the car: RM120,160 – RM24,500 = RM95,660

In conclusion, buy car with cash do have some advantages that we don’t see. For example, the processing fees for car loan or the hassle of making money car payments. Buying a car inMalaysiais something tricky due to the tax system on import cars. These little tips may help you save a little money. But, do we left out something on the calculation above? If yes please email us at malaysiaminilover@gmail.com with the title “Buy car with cash”. You are welcome to email us if you have any opinion or would like to write for us. We would love to hear from you.