I got a loan from the bank for RM287,000. I have cash in my saving of RM37,000. Should I just tell the bank to please loan me RM250,000 instead?
There is no correct or wrong answer to this scenario.
It is like a question of I have 3 cars. I saw another 4 cars in my brother’s garage. He does not mind letting me to use. Assuming my 3 cars are worth less than his 4 cars, it would be advantages for me to use his 4 cars. Right? IN TOTAL, you can have all 7 cars. But at any one time, you probably can only drive 1. Your choices becomes 7 cars (of different types and color).
This is the concept to answer this question. Your bank is keen to give you a loan of RM287,000 (your brother’s car). You have some own money – RM37,000 (your own car). Now, is it wise to take your brother’s car? Although it is selfish, it is higher return, correct? 7 cars! That means you have exclusive rights to your own car (RM37,000) and still can use your brother’s car (RM287,000).
The answer to the question in this respect is you use the RM37,000 as your own money, and RM287,000 as your borrowed money! Total money to you is RM324,000! If you were to pay off the money RM37,000 to reduce the loan, the total amount is only RM250,000.
Tomorrow we will talk about interest cost. Remember, the 4 cars that your brother allows for use will also come with cost of maintenance. Is he charging the maintenance to you?