Tuition loan vs CPF

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Tuition loan vs CPF

Postby julongmum » Tue Jun 14, 2016 5:34 pm

Hi parents

What is yr take between taking up a bank loan and using parent's CPF to pay Uni fee. And Why?

julongmum
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Re: Tuition loan vs CPF

Postby zbear » Tue Jun 14, 2016 6:33 pm

The local banks like OCBC, UOB has interest free loans for NUS, NTU, not sure abt SMU. Loan is to be repaid upon graduation.

CPF requires loan to be returned with interest.

For me, I will go for bank loan.

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Re: Tuition loan vs CPF

Postby julongmum » Tue Jun 14, 2016 10:49 pm

zbear wrote:The local banks like OCBC, UOB has interest free loans for NUS, NTU, not sure abt SMU. Loan is to be repaid upon graduation.

CPF requires loan to be returned with interest.

For me, I will go for bank loan.

CPF interest is 2.5% and this interest goes to the parent's cpf. Bank loan is more than 4%, interest goes to the bank. Correct me if I m wrong.

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Re: Tuition loan vs CPF

Postby zbear » Wed Jun 15, 2016 6:08 am

julongmum wrote:
zbear wrote:The local banks like OCBC, UOB has interest free loans for NUS, NTU, not sure abt SMU. Loan is to be repaid upon graduation.

CPF requires loan to be returned with interest.

For me, I will go for bank loan.

CPF interest is 2.5% and this interest goes to the parent's cpf. Bank loan is more than 4%, interest goes to the bank. Correct me if I m wrong.




Huh? I thought I already said the local banks provide interest free study loans to be fully repaid after graduation. So why do u need to pay 4%?

:?

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Re: Tuition loan vs CPF

Postby slmkhoo » Wed Jun 15, 2016 7:31 am

zbear wrote:
julongmum wrote:CPF interest is 2.5% and this interest goes to the parent's cpf. Bank loan is more than 4%, interest goes to the bank. Correct me if I m wrong.

Huh? I thought I already said the local banks provide interest free study loans to be fully repaid after graduation. So why do u need to pay 4%?

:?

I guess the bank interest only kicks in if the loan is not repaid immediately upon graduation. So if the student/parents have the means to repay immediately, then using CPF is more costly. But if the student needs to work and earn after graduation in order to repay, then a bank loan is more costly.

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Re: Tuition loan vs CPF

Postby floppy » Wed Jun 15, 2016 8:07 am

slmkhoo wrote:
zbear wrote:Huh? I thought I already said the local banks proviude interest free study loans to be fully repaid after graduation. So why do u need to pay 4%?

:?

I guess the bank interest only kicks in if the loan is not repaid immediately upon graduation. So if the student/parents have the means to repay immediately, then using CPF is more costly. But if the student needs to work and earn after graduation in order to repay, then a bank loan is more costly.


Yup. Interest free only during course of study, but charged at average prime rate of DBS, OCBC and UOB after graduation.

If there isn't any means to repay immediately, CPF loan is a better deal. Plus, the loan interest is payable to the CPF holder (the money isn't "lost" to a third party). Plus plus, there are protection and waiver policies (aka contingencies plan for the worst case scenario) in the CPF loan scheme which will not be available to a commercial bank loan.

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Re: Tuition loan vs CPF

Postby slmkhoo » Wed Jun 15, 2016 8:23 am

floppy wrote:
slmkhoo wrote:I guess the bank interest only kicks in if the loan is not repaid immediately upon graduation. So if the student/parents have the means to repay immediately, then using CPF is more costly. But if the student needs to work and earn after graduation in order to repay, then a bank loan is more costly.


Yup. Interest free only during course of study, but charged at average prime rate of DBS, OCBC and UOB after graduation.

If there isn't any means to repay immediately, CPF loan is a better deal. Plus, the loan interest is payable to the CPF holder (the money isn't "lost" to a third party). Plus plus, there are protection and waiver policies (aka contingencies plan for the worst case scenario) in the CPF loan scheme which will not be available to a commercial bank loan.

If banks are aware that some will prefer to repay before interest kicks in, do they charge some kind of "service" or "admin" charge if the borrower decides to repay early? Seems to me that they would.

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Re: Tuition loan vs CPF

Postby floppy » Wed Jun 15, 2016 9:17 am

slmkhoo wrote:If banks are aware that some will prefer to repay before interest kicks in, do they charge some kind of "service" or "admin" charge if the borrower decides to repay early? Seems to me that they would.


Nope. According to POSB, "No early repayment charges should you choose to redeem your loan before end of the tenure." It's actually similar to the CPF scheme.

On second thought, I think CPF is a better option even if you intend to make the full payment immediately. Should the unfortunate thing happen (to either the borrower or account holder) before the loan is repaid (repayment starts a year after graduation), CPF does not need the estate to make the repayment. For bank loan, you would have to purchase an insurance to cover both parties.

floppy
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Re: Tuition loan vs CPF

Postby lego » Wed Jun 15, 2016 9:29 am

I don't quite get why the 2.5% interest should be considered as not lost leh. :?

If the funds in CPF has been left untouched, it will earn 2.5% interest per annum (from government for the use of our cpf monies :siam:). So, there's a "cost" to using the amount for uni tuition fees, which is the interest income which would have been earned had it not been used?

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Re: Tuition loan vs CPF

Postby floppy » Wed Jun 15, 2016 9:37 am

lego wrote:I don't quite get why the 2.5% interest should be considered as not lost leh. :?

If the funds in CPF has been left untouched, it will earn 2.5% interest per annum (from government for the use of our cpf monies :siam:). So, there's a "cost" to using the amount for uni tuition fees, which is the interest income which would have been earned had it not been used?


A. If the CPF is left in the OA, it will earn 2.5%.
B. If the CPF is loaned for the tuition fee, the borrower would have to pay the loan amount + 2.5% for the duration of the loan.

No difference between A and B. Either you "lend money to the G" and earn 2.5% or you lend money to your kids and earn 2.5%.

P.S. prime rate is closer to 5% now I think.

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