Case study: Affording a car

The trial to AKPK has enhanced my cognition towards auto loan and recognition card disbursement. Having in-depth cognition about auto loan, it allowed me to see the factors of purchasing a auto particularly my affordability. Before sing to purchase a new auto or a used auto, I have to look into the characteristics, dependability and funding of the auto. Calculating and gauging the monthly auto installment enables me to purchase a auto that is low-cost where the monthly installment is less than 40 % of my cyberspace monthly income. This would guarantee that I am able to pay for the auto loan alternatively of running into debt. I would so besides have to fix for the disbursals such as route revenue enhancement, gasoline, parking, toll, and others. With this, I would hold to salvage more from other disbursals such as amusement disbursals in order to pay the auto disbursals.

Further, the trial has given me tips on the wise usage of recognition card ; for illustration, settle the outstanding balance in full. This has allowed me to pass my recognition card sagely and pay the outstanding every month when I have a recognition card. This is to guarantee that I will non bear the cost of high late payments charges. Besides, I besides get to cognize the different types of cards that are available and their usefulness such as charge card that imposed high late payment charges, debit card is a good option for control disbursement, and postpaid card has limited disbursement bound. This would so guarantee that I would use the appropriate card that is suited for my status in future.

( 270 words )

Part B

  1. I. Price list of Toyota Vios

Model

Price ( RM )

Toyota Vios 1.5J ( MT )

73,213.50

Toyota Vios 1.5J ( AT )

77,313.50

Toyota Vios 1.5E ( AT )

82,913.50

Toyota Vios 1.5G ( AT )

88,513.50

Toyota Vios 1.5TRD Sportivo ( AT )

93,213.50

( UMW Toyota Sdn Bhd, 2014 )

Assuming Tom is be aftering to purchase Toyota Vios 1.5J ( MT ) and the monetary value is inclusive of insurance.

Vehicle monetary value ( RM )

73,213.50

Down payment ( % )

10 [ RM73,213.50 x 10 % = RM7,321.35 ]

Hire Purchase Loan sum ( % )

90 [ RM73,213.50 x 90 % = RM65,892.15 ]

HP rate ( % p.a. )

3

Loan term of office ( old ages )

9 or 108 months

Entire involvement charged = Loan sum ( RM ) ten Rate ( % ) x Old ages

= 65,892.15 ten 3 ten 9

= RM17,790.88

Entire loan + involvement = RM65,892.15 + RM17,790.88

= RM83,683.03

Monthly installment = RM83,683.03 & A ; divide ; 108 months

= RM774.84

Engagement pealing monthly installment = RM10,500 & A ; divide ; 12 months

= RM875

two. Debt to Income Ratio =

Net monthly wage = gross wage x ( 1 – EPF ) ten ( 1 – revenue enhancement )

RM

Monthly wage ( after EPF and fringy revenue enhancement )

[ 5,500 tens ( 1 – 11 % ) ten ( 1 – 6 % ) ]

4,601.30

Installments

Car loan

774.84

Battle ring

875.00

Entire debt installment

1,649.84

Debt to Income Ratio ( 1,649.84 & A ; divide ; 4,601.30 )

35.86 %

Based on the computation above, Tommy can afford to purchase the auto and the engagement ring. This is because his Debt to Income Ratio is 35.86 % which is below 40 % of AKPK recommended Debt to Income Ratio.

  1. I. Monthly installment payment on the house loan:

Property monetary value ( RM )

550,000

Down payment ( RM )

200,000

Loan sum / Margin of Finance ( RM )

350,000 ( 550,000 – 200,000 )

Loan involvement ( level ) %

5

Loan term of office ( old ages )

30 or 360 months

Entire involvement charged = Loan sum ( RM ) ten Rate ( % ) x Old ages

= 350,000 ten 5 ten 30

= RM525,000

Entire loan + involvement = RM 350,000 + RM525,000

= RM875,000

Monthly installment = RM875,000 & A ; divide ; 360 months

= RM2,430.56

two. Debt to Income Ratio =

RM

Monthly wage ( after EPF and fringy revenue enhancement )

4,601.30

Installments

House loan

2,430.56

Entire debt installment

2,430.56

Debt to Income Ratio ( 2,430.56 & A ; divide ; 4,601.30 )

52.82 %

Based on the computation above, Tommy can non afford to purchase the house. This is because his Debt to Income Ratio is 52.82 % which is above 40 % of AKPK recommended Debt to Income Ratio.

  1. First, Laura shouldcut down her recognition card use. Restricting the figure of recognition cards she carries based on her demands and payment capableness would cut down her recognition card debt. She should settle her outstanding balance in full in order to salvage the late payment charges. If she makes merely the minimal payments on her recognition card outstanding, she will stop up paying more money to the card issuer as compared to the original sum she paid for the merchandises or services due to intensify involvement. She is besides consultative to avoid utilizing recognition card if she can non do the monthly payments as recognition card costs more money if she did non utilize it sagely. Besides, she should continuously look into her recognition card monthly statements to safeguard proper minutess and charges are recorded.

Second, Laura has to populatewithin her agencies. Spending the money on current life disbursals reduces the sum she can salvage and put. As her wage is non predictable, she should salvage for exigency financess which are equal to three to six months of her life disbursals and salvage for irregular payments. It is better if she could hold a clear apprehension between her demands and wants. She is suggested to pass to run into her day-to-day life demands alternatively of disbursement on branded apparels and merchandises. She should cleverly populate below her agencies and salvage her money instead than showcase it. This can assist her to salvage more money and set aside money for future usage.

Third, Laura shouldhold satisfaction. It is about impossible to get away the force per unit area to pass and so pass some more. The job of Laura is that her overspending frequently leads her to under salvaging, debt accretion and long-run fiscal insecurity. She should coerce herself to avoid negative fiscal influences every bit much as possible. This means she is supposed to alter her behaviour on preference for the high life. In her status, she can travel to a topographic point that have charges lower lease in order to salvage from the lease.

Furthermore, Laura shouldborrow in a responsible mode. Alternatively of borrowing from friends and relations, she can seek to increase her inactive income and happen parttime occupation to settle her debt. Further, when she borrows, she has to maintain in head that she should borrow to run into her demands and non her wants and should borrow within her agencies. It is consultative that she borrows an sum that she can pay back comfortably. It is recommended that the entire monthly refunds should non transcend 40 % of her cyberspace monthly income. She should besides bear in head that her creditworthiness will be affected if she do non refund her loans harmonizing to the footings of refund.

Last, Laura shoulddevelop good fiscal direction wonts, with regular check-ups of her hard currency flow and net worth. She is non advised to purchase the VolksWagon Jetta as purchasing a new auto is an unproductive debt. This is because it is a support for Laura & A ; apos ; s life style wants and does non bring forth income for Laura ; it is a debt for her alternatively. As her salary varies, she is barely to pay for the monthly auto loan installments and the down payment. She should besides take into consideration of all committednesss and unexpected disbursals. Buying the auto incurs costs including insurance, route revenue enhancement, gasoline and other costs. Additionally, the new auto depreciation is high where it is at least 10 % in the first twelvemonth ( AKPK, 2014 ) . Therefore, losingss are higher on resale and it has higher funding costs over the term of office. As she already has a auto, it is non practical to buy the new auto.

  1. Tommyshould nonact as a surety to Laura & A ; apos ; s auto loan. There is a high opportunity that Laura could default her payments as herwage is non fixed. She may all of a sudden happen that she can non run into the footings and conditions of the recognition contract because of employment or any other grounds. This could potentially go forth Tommy in demand of debt aid. Further, Laura & A ; apos ; s disbursement behaviour is non controlled and she has a preference for the high life and frequently vies branded apparels and merchandises. For this ground, Tommy should ne’er move as a surety unless he is able to afford the refunds. However, as Tommy is traveling to purchase a Toyota Vios and a house, moving as a surety would increase his load if Laura did non pull off to pay her debt.

Additionally, Tommy should see the ground behind why Laura needs a surety to take the loan. Laurahapless recognition history and creditworthinessis the chief ground bank wants a security because they are non prepared to take the hazard of imparting the money itself. Laura merely pays the minimal monthly payments and bears the late charges. In this state of affairs, being a surety can destroy Tommy & A ; apos ; s recognition evaluation and may set his ain fiscal state of affairs in danger. The presence of a new loan on Tommy & A ; apos ; s recognition profile reduces his mean length of recognition history and this besides hurts his mark.

Besides, Tommy should besides see hisrelationshipwith Laura. Laura is merely Tommy & A ; apos ; s girlfriend in current state of affairs and they have non got married yet. There is a opportunity that they have a major autumn out and no longer wish to be associated with each other. Their relationship could hold ended but the loan committedness is still tied up. Laura sometimes could even borrowed money from her friends and relations to pay her recognition card debts without Tommy & A ; apos ; s cognition. This shows that Laura is non able to pull off her debt and she is non honorable to Tommy.

Therefore, Tommy should non move as Laura & A ; apos ; s surety for the auto loan. He should takes into history Laura wage, recognition history and their relationship. When Tommy agree to go a surety, he is apt for the unpaid part of the hire purchase funding and the involvement due if Laura default on her refund. If Tommy fails to pay the debt, the creditor can take ownership of the belongings Tommy has listed as security for the debt. This could set Tommy into fiscal job and may take to bankruptcy if he has excessively much loan and unable to pay for it.