I was called by CIMB and offered a credit card linked personal loan (a.k.a. cash advance facility) called CIMB CashLite at the flat interest rate of 3.99% for a tenure period of up to 4 years (48 months).
I was told that there are no fees involved (cash advance fees, processing fees, etc.) other than the flat interest rate. Of course, there is still a catch: every monthly instalment need to be paid promptly, or else there will be penalty charge (late payment charge) and finance charge on the outstanding payment.
I was also told that there are no lock-in periods or early settlement fees for this loan. Early settlement can be made by calling to their customer service.
Is the interest rate of 3.99% looks attractive? So far, this is the lowest credit card linked personal loan rate offered to me. Not long ago, I was also offered by HSBC at an interest rate of 4.99% which I had rejected.
To quickly calculate the effective interest rate, what I need is MS Excel. Google Sheets or Docs To Go spreadsheets in my Android phone can do the same calculation too.
Open a new worksheet, and key in the information for loan amount (principal), the flat annual interest rate, and the number of repayments.
For example, a loan amount of $10,000 at the flat annual interest rate of 3.99% over a period of 4 years is as below:
The total interest payable is =B1*B2*B3/12. This is because 3.99% is the annual rate, so we have to divide 48 months by 12 to get 4 years, and apply the 3.99% per annum rate to it.
The total repayment is =B1+B5. This is very straightforward.
The monthly payment amount is =B6/B3. This is also very straightforward.
Once we obtained the monthly payment amount, we can calculate the effective interest rate with this formula:
And the effective interest rate I got is 7.46%.
Back to the question: is this interest rate attractive?
I would say it is quite attractive to me.
If I take the loan and make an investment with CAGR of 3.99%, I would have gain 1694.09 from a 10,000 principal 4 years later. Deducting the interest paid of 1596, I still made 98.09 from it. That is 0.98% of 10,000.
If I take the loan and make an investment with CAGR of 10%, I would have gain 4641 from a 10,000 principal 4 years later. Deducting the interest paid of 1596, I will make 3045 from it. That is 30.45% of 10,000.
So, you guess, did I actually take up this offer by CIMB?