Hi, I just graduated. I am using the cpf education load
and need to repay it. I owe cpf $24k . the interest rates is 2.5%.
I am thinking of repaying it slowly at $500/mth. I did not do any
investment as i do not know how to so i intend to use the remaining
money to earn interest in bank under certain higher interest rates
account. Do you think I should repay as much of the education loan
as soon as possible so that I will not need to pay much interest
rates or should I do it slowly while putting the rest of the money
i have in bank to earn interest?
I calculated that the money earn for interest rate 1%+ is much much
lesser than the interest accumulated for my loan. I see that I have
pay like every month $50 interest for my education loan.
Haiz...
In your case, pay as much as possible to repay the loan. Unless
the bank or whatever investment you do, is giving you way higher
than 2.5%pa, say maybe above 5%.
I'm not so sure about how CPF calculated their loan interest,
but all banks calculate loan interest using a monthly-rest basis.
Normal interest calculation is
simple interest calculation: u have to pay = rate(%pa) * no of
days own * amt own / 365
monthly rest basis calculation is based on your loan tenor(LT)
and monthly installments(MI). The shorter LT the higher the MI.
BUT, interest is calculated every month. So part of your MI goes to
reducing the outstanding (o/s) loan, part goes to pay the interest
for that month, hence your o/s loan is reducing every mth. So based
on this you'll realised very little of the MI goes to reducing
the o/s initially, as most goes to reducing the
interest.