Student Loan - Part I

I graduated from National University of Singapore (NUS) on June 2005. I suppose I actually graduated after my final paper which 20 April 2005. So after this date I have been brought to a whole new world which is "The world after student". I won't say it is working world because until now I am still looking for a job. Even though I have been working part time jobs in three of my four years studying in NUS, I still considering it is not real working. Yeah, I been communicate with real working people and do my work as professional as I could. But whenever people look at me I am just a student. When you are student, you did a mistake you can be forgiven.

Ok, let's start with student loan. I will first do a simple analyse on the loan. To round things out if you are a student taking NUS Study Loan and Tuition Fees Loan, one year is $10,000. So if you studying for three years in NUS, your total loan will be $30,000. For me is $40,000. Let say my case, I got two loans (excluding computer loan), one from DBS and another from OCBC. The minimum installment per month is $200. The annual interest is 4.75% so every year is $1900. Some of you will say it is like peanut (by the way, peanut costs $600,000 each in Singapore. - It is a jokes brought to you by Mrs.Goh)

For those who don't realise the power of compound interest, I shall make them realise. Below is the rough formula of compound interest.

New Balance = (Old Balance - Installment Paid) x Interest

When you see 4.75%, it seemed very little. When you see $1900, it is quite a lot. But you haven't see how does it add up to a large amount by compound interest. Since the minimum you need to pay is $400, so:

0  40000  36872
1  36872  33595
2  33595  30163
3  30163  26567
4  26567  22801
5  22801  18857
6  18857  14724
7  14724  10396
8  10396  5861
9  5861   1112
10 1112  -3862

You will need to take 10 years plus to pay all the loan. The extra cash you need to pay the bank is about $10,000. Just merely $40,000 in ten years you get extra $10,000 which is 25% of $40,000.

Once I been thinking too, what if the inflation rate compensate off the interest? It is really a wishful thinking because the 4.75% interest can be adjusted according to the inflation rate. You see we can't beat the bank like this, you can only do that by clearing your loan ASAP.

The fixed deposit rate is much more lower than the loan interest. Refer to http://www.dbs.com/ratesonline/fdsgd.html. It is only 0.75% per year compared to 4.75%. Therefore, if you think you just save your money in the bank, it is better to do something if you are not thinking to invest the money. I will continue more on how does it will ruin your life in part two.