For many of us, part of becoming an adult means learning to drive and owning a vehicle.
Be careful, though; buying a vehicle is a long-term commitment, and you should be aware of the upfront costs and how much you’ll need to pay monthly once you own a ride.
Tips before buying a new ride
Unlike property, your ride will decrease in value, so you need to take into consideration various aspects before you even think of looking at options.
Our friends at Multiply have quite a number of helpful tips for you alls, especially if you are planning to go for that big buy soon.
Step 1: Do you really need a car?
Not to be a downer but vehicles are expensive! In fact, they’re the second highest reason why people go bankrupt in Malaysia so always weigh your options first.
Before making the commitment to buy a vehicle, figure out what other transport alternatives you might have.
If you can use public transport, do it!
Taking advantage of public transportation allows you to set a monthly budget for transport without having to deal with any financial surprises (like maintenance or repair costs!).
Step 2: How do you choose between a second-hand car and a new car?
The smell of a new car can be intoxicating and very tempting as compared to an old one but does a new vehicle actually fit into your budget?
Check out this handy table below to compare the factors when purchasing a new car as compared to a used one.
Step 3: What are your upfront costs?
Upfront costs basically mean stuff that you have to instantly pay for when purchasing a new vehicle.
When it comes to upfront costs, there are various factors to keep in mind. They include:
Your down payment
Car loans in Malaysia are usually called ‘hire purchase loans’, and most banks will require a guarantor before granting you a loan if you’ve been working for less than two years.
Also keep in mind that you’ll need to pay a down payment of at least 10% for a new car and 15% for a secondhand car, although this may vary from bank to bank.
Pro tip: When it comes to paying the down payment for your car, pay as much as you possibly can! This is because car loan repayments in Malaysia are calculated with flat interest rates. You can reduce the amount of interest you pay by a lot if you take on a smaller loan.
Processing fees (if you purchase a vehicle through a secondhand car dealer)
If you purchase a car through a secondhand car dealer, they’ll sometimes charge you a processing fee. This fee varies from dealer to dealer.
Make sure you check beforehand to understand specifically what your dealer is charging you for.
Remember to check this cost when you’re looking at the purchase price of the secondhand vehicle!
Other fees (if you purchase a vehicle from another individual)
Instead of doing it yourself, you could hire a runner to handle the paperwork process for you.
Some runners charge up to RM150 to handle the PUSPAKOM inspection, RM280 to handle the JPJ transfer application (the processing fees are charged on top of this), and they also charge a fee for assisting with the insurance purchase and road tax renewal, so make sure you shop around and compare the fees if you want to hire a runner.
Step 4: What are your recurring costs?
This step is super important because you really don't want to be burdened with forking out a huge sum on a month to month basis.
Here is what you should keep in mind:
Monthly loan repayment. This is the sum that you should be paying the bank (unless you want the tarik kereta guys coming after you lah).
Road tax. Make sure to budget enough for your vehicle’s road tax every year! For personally registered cars in Peninsular Malaysia, the following road tax rates apply.
Petrol costs, parking fees and toll charges. Your vehicle’s fuel consumption is an important factor when buying a vehicle, so look for one with a lower kilometre-per-litre consumption to minimize your petrol costs.
It may seem inconsequential but parking fees and toll charges are also items that you’ll need to budget for. Always keep in mind that sikit-sikit lama-lama jadi bukit.
Maintenance costs. This cost will depend on the vehicle itself. Important factors to consider when trying to reduce your maintenance costs would be the make and model of your vehicle, whether it’s new or secondhand, and how much you use it.
Annual insurance premiums. Insurance is unbelivably important. You may not think you need it but even the most careful drivers can get into sudden accidents and believe me you, you DO NOT want to end up paying that huge bill.
Step 5: How much can you afford?
Here’s something that’s easy to forget: a vehicle’s value goes down each year after you’ve bought it. In other words, a vehicle is a depreciating asset.
To understand what you can REALLY afford, you'll need to calculate a few things:
Determine your net monthly income (that’s your income after taking away taxes, EPF, and PERKESO/SOCSO deductions). Now, minus off all the usual stuff you spend your money on every month, such as your home loan or rental cost, personal loan repayments, credit card interest, utility bills, food, petrol and toll costs, education fees, etc.
Then you’ll need to take away the insurance, road tax, maintenance fees, and other expenses that you’re expecting to pay for your car (we’ve listed those above in step 4!)
What you’ve got left is the amount that you can afford for your monthly vehicle loan repayment. Most banks have guidelines to determine whether they are able to lend to you. A common guideline is requiring all of your loan commitments (including proposed loan) to be less than 60 per cent of your income.
Ask the bank for a monthly payment breakdown for the entire term of the loan.
It’s great to have this so that you know exactly how much you owe to the bank, and when payments are due.
This way you don’t end up missing a payment deadline!
Knowledge is power
So now that you understand the actual costs, risks and speedbumps that you may encounter when purchasing a new vehicle, make the decision wisely.
Take your time. Don’t be starstruck by that shiny new ride and blindly get into a financial commitment that you just cannot afford.