Earning Easy Money: Maybank ASB Loan

I saw an article from a blog, RobustMind on a potentially good idea to grow money with a good return with minimal start up capital. It is utilizing the ASB Financing Scheme by Maybank. Maybank provides 2 type of financing for this scheme aka conventional type and Islamic. The differences are some technicality between how they calculate the interests and rebates. See my earlier posts on Islamic Financing.

Eligibility

• Individuals who are between the ages of 18 and 60 years old
• Bumiputera

Loan Amount

• Min loan amount : RM10,000
• Max loan amount : Up to RM400,000 per borrower, at any one time including the balance outstanding of the existing ASB loans (if any), or up to the maximum investment amount allowed by ASNB, whichever lower

Margin of Advance

For loan amount up to RM200,000

• Up to 100% of nominal value of ASB units
• Up to 105%, inclusive of the GASBRTA

For loan amount above RM200,000, at any one time

• Up to 95% of nominal value of ASB units
• Up to 100%, inclusive of the GASBRTA

Loan Tenure

• Up to 25 years or
• Up to age 60, whichever is earlier

Pricing

• Loan below 30,000
  BLR - 1.35 % (for 1st 3 years)
  BLR - 1.30 % (thereafter)
• Loan RM30,000 & above
  BLR - 1.65% (throughout loan tenure)

View the monthly instalment repayment schedule

Repayment Frequency

• Monthly

Repayment Option

• Single installment only

Mode of Installment Payment

• Standing Instruction (SI)

ASB Income Distribution & Bonus Earned

• Automatically credited into the respective ASB unit holder's account
• ASB financial year ends December 31

So RobustMind's idea is that ASB dividend's has never fallen below 8.55% for the past 20 years. (need to check the accuracy of this fact though). So he has made a calculation that given with the current BLR-1.65% (6.3-1.65=4.65%), the 1st year's dividend is enough to cover the cost of the repayment for the 2nd year.

He is basically trying to earn profit between the BLR-x% (currently at 6.3-1.65 = 4.65%) loan rate and the presumed average return of ASNB , lets say 7%. Thus the spread is like 2.35%. This is basically, like the FD rate available in the market.

For example, for loan amount RM40,000 for 25 years

1st year installment is RM227 (monthly) * 12 = RM2724. (Total amount yearly)

Assuming full year dividend given by ASB is at modest estimation 7% , (RM50,000 * 7% = , you will get RM3500.

Here you can take the dividend and roll it on as the payment for the 2nd year. Continue rolling until the end of tenure and you can redeem the ASB at RM1.00 per unit. Meaning that the RM50,000 is capital protected BUT surely not inflation protected. Conclusion, after 25 years, you get back the Rm50K (sell 50,ooo worth of units) and extra left over-dividend when you roll the money.

Here is my take on it, I prefer to use an shorter tenure to demonstrate potentially some easy money to be made. However, shorter tenure means higher monthly repayment, and the dividend may not be sufficient to roll into next year's payment. The point i want to highlight is that some low risk and easy money can be gained, judging from the predictability of dividend rate given by ASB.

The strategy:

The below assumption is true, IF only BLR and ASNB remains the same throughout the tenure,

(table at website shows RM937 per month repayment for 5 year tenure).

So assuming, RM50K loan for 5 years, the total repayment at 4.65% interest loan will be 56113.91.(the table is build using principal reducing loan) And assuming ASNB gives you 7%, you will get 70127.59. This will net you 14013.68.

This is a 28% gain of profit in 5 years with quite low risk. Although some people out there can more than in just a few month :P

Next step, is in another scenario, you make the same RM50K loan at the same 4.65%, and dump in in FD and managed to get 2.35% for 5 years. You will get 56157.69. This is to show that in general it does not make sense to take up a personal loan and try to get any benefit from putting in low interest yielding account.


However, i see the following possible cons..

1. What is the additional unseen fee if you decide terminate the loan earlier..

2. What is somehow late/delay payment? Is there a penalty..This bank is notorious for its heavy penalty, lets say you miss a few payment on the 1st year, then your remaining years..your interest might get BLR+2.2%!!! If you dont believe me, ask them about this on their housing loans package.

3. Avoid, getting very high loans. The reason is that in case in the future you need to buy a RM200-300K house, you might have problem getting a housing loan if you are stuck with this loan and you cannot terminate.

Thus, the moral is keep tenure short and monthly repayment affordable but you don't have the ability to roll your money using a small capital.

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