How much can you save from loan early settlement?

Typically, there are 2 types of loans. One is fixed interest rate type, and another is variable interest rate type.

Some examples of fixed interest rate loan are: car loan, personal loan, credit card loan, study loan, business loan, etc.

Since the interest rate is fixed throughout the loan tenure, you can calculate its total interest using the simple interest formula of P x R% x T. The total loan repayment amount will then be principal plus total interest. The installment amount will be total repayment amount divided by no. of installments.

Variable interest rate loan has its interest calculated daily (daily rest), monthly (monthly rest), or other predetermined interval period. Property loan is normally of this type.

For this type of loan, since the interest rate in the future is unpredictable, the actual interest saved from early settlement is also unpredictable until the time has reached its original repayment end date. If we fix the last interest rate before the early settlement made for the rest of the original tenure, then the interest saved can be estimated using the simple interest formula above. Just substitute P with the early settlement amount will do.

The rest of this article will focus on how much we can save from early settlement of fixed interest rate loan.

The interest saved is usually called interest rebate, and is calculated according to the rule of 78. For Islamic loans, it is calculated according to the formula of Ibra'. Basically, both formulae are identical.

As an example, let's say a 7 years loan with principal 100k, 3% interest per annum, if we fully settle it 3 years after the borrowing, how much interest rebate can we get back?

Principal = 100k

Interest = 100k x 3% x 7 = 21k

7 years total repayment = 100k + 21k = 121k

Monthly installment = 121k/84 = 1440.476, rounded up to 1440.48

Since there is a round up of 0.004 for every installment, the last installment will then be 1440.16 only.

The sequential sum of all installment no. = 1+2+3+...+82+83+84 = (84)(84+1)/2 = 3570

According to rule of 78:

Interest for installment no. 1 = 21k x 84/3570

Interest for installment no. 2 = 21k x 83/3570

Interest for installment no. 3 = 21k x 82/3570

and so on...

Putting all the above information into an Excel worksheet, we can produce the following... 

and from the table above, we can produce the following graphs for better visualization of the interest portion:

We can observe that, for earlier installments the portion of interest is higher, and this will gradually reduce over time.

Back to our question, if we make an early settlement at the 36th installment, how much interest rebate can we get?

The interest rebate will be the sum of interest portion of the 37th installment until the last 84th installment.

There is a formula to quickly calculate this interest rebate:

Interest rebate = n(n+1)/N(N+1) x I

where:

N is the overall no. of installments

n is the no. of remaining installments

I is the overall interest amount = P x R% x T

Many financial institutions require an early notice period of at least 3 months, else a penalty will be imposed based on the interest amount of the notice shortcoming installments.

Some financial institutions also charge a fee, such as processing free, or early settlement fee, for early settlement.

By including these factors, our final formula will be:

Interest rebate = (n-t)(n-t+1)/N(N+1) x I - C

where:

t is the shortcoming of notice period

C is the related charge for early settlement

Last but not least, looking at our example above, we can observe that the interest is nearly fully paid off during the last 1.5 years of the loan tenure. As such, the interest rebate available in that time range is very minimal, and you can't save much for making early settlement at the final stage of the loan tenure.

Investing in Kenanga Digital Investing (KDI)

Kenanga Digital Investing (KDI) has been around for a few months since early 2022, and I have just joint on the bandwagon last week.

KDI is a robo-advisory investment platform under Kenanga Investment Bank. It can be accessed either using web browser to its website, or via its mobile app available for Android and iOS.

FYI, this is the same Kenanga Investment Bank which has another popular investment platform called Rakuten Trade for online stock investment.

I just put in the minimum starting fund requirement of RM100 in KDI Save and RM250 in KDI Invest respectively for a trial to test its performance. I've used my friend's referral code during registration and got RM10 as a result. Therefore, my invested amount in KDI Invest has become RM250 + RM10 = RM260.

After invested for about a week, this is my portfolio performance so far. 

My KDI Save has gained RM0.08 (0.08%) from RM100, equivalent to 2.92% p.a over a period of 10 days.

My KDI Invest has gained RM2.03 (0.78%) from RM260, equivalent to 28.49% p.a. over a period of 8 days.

I would say, this investment result is pretty impressive. Hope that KDI can keep up this kind of performance for a long period of time.

Currently, KDI only has 2 investment products: KDI Save and KDI Invest.

KDI Save is similar to Opus Money Plus Fund (MPF), Touch n Go (TNG) GO+, StashAway Simple, and other money market fund (MMF). It is quite impossible to incur losses, and its return is expected to be just slightly higher than the bank's fixed deposit rate. This is a kind of investment of low risk low return.

KDI Save's return is daily calculated and daily credited into your account. Currently, for an investment amount of RM100, you can get RM0.01 per day. KDI does not incur any management fee, pretty similar to fixed deposit savings with bank.

KDI Invest is an A.I. operated ETF investment fund. It invests into ETF funds listed in the US market, which coverage is around the world.

The investment profit or loss of KDI Invest is daily updated in its returns value. Being an ETF fund, its fluctuation is pretty small.

You can decide your KDI Invest portfolio risk profile to be set as either Very Conservative, Conservative, Balanced, Growth or Aggressive Growth. That will determine the level of fluctuation of your daily profit or loss.

Invested amount of RM3,000 or less in KDI Invest is free from fund management fee. More than that, there will be a management fee of 0.3% to 0.7% per annum. On top of that, there is also an ETF transaction fee of 0.2% to 0.4%. per annum. This amount of fund charges is considered very minimal, compared with the charges of majority of the mutual funds in the market.

Both Malaysian and non-Malaysian who has bank account in Malaysia can invest with KDI. You can sign up your account in their website or via their mobile app.

If you want to get an additional RM10 in your KDI Invest account, you can sign up using this referral code: 114053

After signing up, before you can gain access to KDI and start investing, you need to wait for 1 or 2 days for the processing of your KYC verification. You will receive an email from KDI once your account application is approved.

Please remember that, in order to get your RM10 for using my referral code: 114053, you are required to transfer a minimum of RM250 from your bank account to KDI Invest within 30 days upon account creation. If your KDI Invest account is not activated with an initial investment after the expiry date, you will miss your opportunity of getting that RM10.

e-LATiH - thousand over free online training courses with cert by HRD Corp

FYI, there is an online e-learning portal called e-LATiH by HRD Corp (formerly known as HRDF, under MOHR), which you can freely register for an account to enroll for a selection of 1000++ free online courses.

The URL of e-LATiH is: https://elatih.hrdcorp.gov.my/

This online e-learning portal is open to Malaysian and also non-Malaysian. Basically, everyone are free to use it without much restriction.

Categories of the courses, which could be either in English, Malay or Chinese, including:

• Leadership or organisational development
• Education, skills development or languages
• Marketing and innovation
• Management / business management and corporate governance
• Public relations, customer service or communications
• Purchasing, logistics, supply chain or electronic business
• Process and operation
• Quality management and productivity
• Safety and health
• Sustainability
• Scientific or technical, statistics or research and development
• Wholesale or retail or electronic commerce
• Building, construction, maintenance or landscaping
• Creative arts, journalism or entertainment
• Digital technologies and digital transformation
• Engineering
• Financial services and financial technology

The courses are conducted in the form of pre-recorded video. Upon completion of watching the full video, you will be given a Certificate of Completion by HRD Corp. No examination is needed for most of the courses, while some courses may have assessments in the form of quizzes or short assignments.

You can start learning anytime, and complete a course at your own pace with no specific deadlines.