34) Should you take Credit Card Loan to Invest?
I got a call form a bank officer advising me to take cash out from my credit card credit limit. It means that I can have some money without any collateral. The money can be used for investment or even pay my home loan.
The interest charged is 4.5% per annum.
I can pay installment for up to 2 years.
I asked for $10,000 loan payable for 2 years.
What is the monthly installment amount?
What is the actual loan interest charged?
The calculation is as below.
The loan amount = 10,000.
Interest = 10,000 x 4.5% x 2 years = $900.
Total loan amount = 10,000 + 900 = $10,900.
Monthly installment
= 10,900 / 24
= $454.17
This calculation above is using the simple interest method. I pay the interest based on original loan amount for full period and divide the installment equally. Basically the 4.5% interest is charged even after you pay up to reduce the loan amount.
This is similar to car loan installation calculation in Malaysia.
If I use the compounding interest method, the yearly interest rate much is higher.
You can use the Financial Calculator.
PV= 10,000
Payment = - 454.17 (negative for pay back to bank)
Periods = 24
Compounding = Monthly
Mode = End
Annual Rate = 8.42%
Wow. What a huge difference!!!
Simple Interest = 4.5%
Compounding Interest = 8.42%
So, be aware on the calculation method used to calculate the monthly installment. Check with the bank officer which interest calculation method they use.
If I had taken this loan, I need to be sure that my investment can give me a Return Rate higher than 8.42% per annum for 2 years. Else, I will be losing more money paying the bank interest.
The returns used above are just for illustration only. Do consult your Professional Consultants for proper advise.
Using Credit Card has its Advantages. If you pay off all the outstanding every month, then using Credit Card has its advantages.
For more info:
https://malaysiansavemoney.blogspot.com/2019/09/ringgit-plus-credit-card-comparisons.html
#highlevelrules
Truely...very high gambled indeed to utilize credit card advancement/personal loan amount.. you might never anticipates the local/global market sentiment.
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