Sunday, 28 October 2012

Longer repayments mean greater burden, stupid

YOURSAY 'Mustapa is trying to hoodwink Malaysians with this preposterous tale that prolonging the repayment period would soothe the burden of high car prices.'

'Longer repayments won't solve high car price woes'

your sayKgen: Our nine years for car loans (probably the longest in the world) is already untenable as many financial institutions have realised.

The reason is that the market value of the car falls below the remaining loan balance after five years, so borrowers may just let the car be repossessed instead of continuing to pay the loan.

And International Trade and Industry Minister Mustapa Mohamed is suggesting that the loan period be increased further. Either he is dumb, or insensitive, to the plight of car buyers.

How can stretching out repayments be the solution to high car prices? Do we want to pay 20 years for a car? Shall we sleep in the car instead of buying a house?

Changeagent: Mustapa might think that lengthening the period for car loan repayments can help reduce the burden of high car prices, but the reality is that it will make little difference to the student's disposable income levels.

For example, a brand new Proton purchased for RM60,000 paid over nine years at a compound interest rate of 3 percent would cost the buyer around RM725 in monthly mortgage.

If the repayment period is extended to 12 years, the monthly payments would work out to be RM594. The difference is a mere RM131 in disposable income per month over the life of the loan, but RM7,260 in extra interest payments over the additional three years in repayment period.

This hardly sounds like a good recipe at all by the government for reducing the public's cost of living pressures.

Aries46: Changeagent, your example of RM60,000 hire purchase loan at 3% interest would incur the following sums as interest:

Repayment over nine years would entail an interest of RM18,300, which works out to 30.5% of the principle loan amount, while repayment in 12 years would entail an interest of RM25,536, which works out to 42.5% of the principle loan amount.

Mind-boggling figures no doubt, but if this is Mustapa's remedy to beat the scourge of exorbitant government car taxes and prices that snatches away the hard-earned money of poor, he ought to be ashamed of himself.

Aries46: Obviously Mustapa is trying to hoodwink Malaysians with this preposterous tale that prolonging the loan repayment period would soothe the burden of high car prices.

He omitted to mention that extending the loan period would simultaneously hike up the interest payable.
Unlike housing loans, the car hire purchase scheme is rather vicious in that interest is applied at the very onset at a flat-rate multiplied by the repayment term.

For instance, on a loan of RM100,000 at 4% interest repayable in 10 years, the interest amounts to RM40,000. On day one, the loan of RM100,000 is computed as RM140,000 and is mandatorily repayable in 120 monthly installments.

Even if one decides to make an early settlement he would still be accountable for the sum of RM140,000 less a negligible sum allowed as rebate for early settlement.

Pray tell, how this would offset the burden of long-suffering Malaysians who have been victimised in the name of protecting the national car?

Odin: First, let's get one thing straight. As I've said before, I am not a supporter per se of Pakatan Rakyat; therefore, any comments I make criticising Umno-BN are made from neutral ground.

This is yet another instance of Umno ministers talking pure rot. Extending the repayment period merely reduces the quantum of the monthly installment.

This apparent benefit is negated many folds by the longer period the customer is a debtor as well as the bigger amount he has to pay in interests.

You do not have to be a mathematician, neither an Economics graduate nor an accountant, to figure all this out. What has eaten into Mustapa's brain?

Mushiro: This was a very dumb answer by our minister to solve the high car price problem. Drag the payment period longer and let the poor buyer pay more and suffer. He does not want to reduce the excise duties on cars as Umno cronies will suffer.

Guna Otak Sikit: Longer repayment period to overcome the high prices of cars? This is the best way to lose even more money and to use up your future earnings now. What a stupid idea from a so-called minister.

The minister knows fully well that longer repayment period just adds more debt to borrowers. He could not care less as long as BN is in power.

Leongan: In calculating monthly repayment sum for car installment, a very simple method is used - (Loan sum x no of years x interest rate) / No of months - so the longer you borrowed, the more interest you pay.

By prolonging the repayment period, one will end up paying more at the end. Which maths teacher taught you that you will pay less if you prolong the loan period?

ThisLandIsMine: BN, you really enjoy to see the miseries of the rakyat in paying high taxes when they purchase cars. These negate all the fuel you subsidise.

Furthermore, banks are financing the taxed portion which is imposed by the government and earning substantial interests from this.

This multiplying effect result in silent suffering faced by the rakyat while the fuel subsidies are progressively withdrawn. No wonder car financing is a top income earner for banks.

Absalom: How Malaysia continues to survive with such stupid men in charge is one of those mysteries of life.

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