Owning a car in this new era has become a necessity and no longer a luxury. To a certain extent, car ownership is regularly included as a job requirement. This has become the biggest dilemma, especially among fresh graduates. There’s no harm in buying a car in Malaysia as long as you can afford the cost and stay within your means.
The real question here is not how much you’re willing to spend on a car but how much you can afford.
If you can afford to save up and purchase the car in cash then that’s good. However, not everyone is privileged enough to purchase a new car in cash. Most people will probably take out a 5-year to a 9-year car loan with a 3% to 4% interest rate.
For a start, let’s have a look at one of Malaysia’s most beloved and affordable car – the Perodua Myvi 1.5, which costs about RM50,290. Do you think what’s stated on the price tag is all you need to pay? Sadly no. If you were to buy the stated car, you would first need to put down a 10% downpayment of RM5,029. Consider you’re taking out a 5-year loan at 3% interest rate, your monthly repayment would be RM867.50 for 60 months. So you would be paying a total of RM52,050 monthly instalment for over 5 years, not including the RM5,029 downpayment. Thus, a car that you thought only cost RM50,290 would need you to pay a grand total of RM5,029 + RM52,050 = RM55,319 for five years just to own a local car. That’s a lot of difference!
Owning a car does not revolve only at fulfilling monthly repayment. There are a lot more things to consider. You should think of the total cost of ownership too which includes petrol, insurance cost, road tax, maintenance fees, parking fees, toll and any unforeseen expenses ahead. This is what most people forget when buying a car. If you find yourself having an extra of RM1000 in your monthly budget after considering all the basic necessities, you should not get a car with an RM1000 monthly instalment.
How do you know if you can afford a new car? These rules will help you to evaluate your financial standing before buying a car.
One way to know what car can you afford is by looking at the car in which the price is equal to or less than your monthly gross salary x 12 months. Let’s say your monthly salary after EPF and Socso deduction is RM4,000. Then RM48,000 is the price of a car you can afford. But remember, RM48,000 is not all. You will also need extra money out of your pocket for the cost of ownership.
Let’s take a look at another example. If a fresh graduate is left with RM1500 after the statutory deduction, then the car price that this person can afford is RM18,000. Even a brand new Axia Standard E, the cheapest car you can get in Malaysia is worth RM24,090. If there’s no car that exists within your price range, perhaps you can consider buying a used car first to avoid going overbudget.
The first rule shows you what car can you afford to buy according to your income. But does the monthly repayments stay within 10% to 15% of your income? If you’re earning RM4,000 a month, then the car you can afford is RM48,000. However, 15% of your RM4,000 income is RM600 per month. Thus, the maximum value of the car you could actually purchase would be around RM34,000.
Yes, you can go for a RM48,000 car but it is more crucial to stay committed to a 15% monthly instalment. The first rule sets the gross budget for the car you can afford. But this second rule takes all the other ownership expenses into consideration.
Stay below 15% of your monthly income for your car instalment. The maintenance cost, fuel, insurance, tolls and other expenses could cost you more than expected. You shouldn’t be splurging half of your income on a car. Staying below 10% to 15% on monthly repayment will ensure that you have extra money for other things such as emergency funds and life insurance. The pleasure of owning a car only lasts for a while but the pain of paying might last for years.
Some people might opt for a 9-year loan so that their monthly instalment will be much lower. Little do they know that the longer the term of your car loan, the higher the total interest rate. Remember, the value of the car will soon depreciate. You don’t want to be tied to a long-term liability when the car is losing value. It is advisable to keep the loan repayment period as short as possible.
The best way to know whether you can afford a new car or not is by taking into account all the basic expenses such as accommodation, foods, family, savings, investments and other needs first before splurging on a car. Again, there is no shame in buying a smaller or second-hand car if you’re just starting out. It is better to utilise the extra money you have to build your savings and grow your wealth.
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