Prepayment of Hire Purchase Loan

Recently, one of my friend’s sister intended to use her surplus cash for her existing car loan. The surplus cash flow may either be used for investment or for settlement of an existing car loan. What I can suggest in this situation?

Some of the factors she may like to consider:-

1) Whether there are other uses of cash flows in the near future? If so, then this surplus cash flow ought to be set aside instead.

For instance, if you are planning to settle your credit card outstanding payment in near future, invest a real estate, education fund…etc.

2) The rate of return of investment proposal. If the return is no higher than the cost of existing loans, then, would recommend is to settle an existing loan.

For instance, the car loan interest assuming 5 %p.a. while the return from unit trust is just 4.8 % or the Fixed Deposit interest is just 2.5%.

3) The risk of investment proposal. Settlement of an existing loan involves no risk as compared with investment which carries different types of risk.

For instance, invest in stock market which has possibility obtain higher return (5% - 30%), however, there is a risk to loss the capital as well.