Malaysian Finance Minister Lim Guan Eng recently announced that the prices of five models of cars in the market have gone down recently. This is compared to when the Goods and Services Tax (GST) was in place. After the implementation of the Sales and Service Tax (SST) on 1 September, Lim said that prices were still lower for these 5 models compared to when GST was in force. The cars mentioned were the Perodua Axia and Myvi, Honda Jazz, Toyota Vios, Volkswagen Polo and even the BMW 118i.
This is good news, indeed, especially for car buyers. However, before you rush to the automobile showroom for a new car, do consider these financial tips for buying a car, below. A car can be a substantial monthly cost for the buyer, so you need to consider several factors when deciding on which car to buy.
Tips For Buying A Car From The Experts
Bosch Automative Aftermarket Malaysia (Bosch) recently organised a comprehensive experts roundtable session to discuss and gather tips for buying a car that would be helpful for the average consumer. The session took into consideration many variables that would affect your car purchasing power. These include income, cost of the car, protection costs as well as maintenance. Whether buying a new car or used, the tips for buying a car are invaluable information every car buyer should know.
The discussion included experts from finance website, RinggitPlus.com and Allianz General Insurance Company (Malaysia) Berhad. The experts provided insights on financial planning, vehicle protection and car-maintenance factors as well as their cost-benefit perspectives. Important issues were raised, and solutions offered to help first-time buyers navigate car-purchasing.
Figuring Out Costs And Affordability
“Do you need it?”
“Can you afford it?”
These are two important questions to ask when buying a new car, says Mr Hann Liew, founder and director of RinggitPlus Malaysia. “The biggest misconception most first time car buyers have is that as long as you can afford the down payment and car loan installments, you are in the clear,” says Hann.
The experts share that there are many hidden costs in determining your ability to afford a car. Most people think that if they can afford a deposit for the car and the monthly repayments, they can afford to buy a car. This is not necessarily so. What consumers usually fail to factor in is costs for road tax and insurance, petrol, parking, tolls and car maintenance. Along with the price of the car and car loan interests, these costs create a sum called the Total Cost of Ownership (TCO). To quickly figure out whether you can afford a car or not, your monthly TCO should not exceed 20% of your gross income and you should follow a 36% rule of debt-to-income ratio.
Essentially, your Total Cost of Ownership (TCO) indicates the amount you need to set aside monthly to ensure proper maintenance and more accurate costing based on your usage. For example, if your monthly installment is RM600, your monthly TCO could actually be as high as RM1080 going towards your car and transportation expenses.
Figuring Out Your Actual Purchasing Power
Are you thinking that RM1080 per month might be a bit too steep to spend on transportation? Then work out your monthly TCO to figure out the maximum price you can afford for a car based on your salary.
From the slide above, your monthly TCO should be no more than 20% of your gross salary. That means that over the course of 7 years (if you’re taking a 7-year loan), if your monthly TCO is RM800, you’ll be paying RM67,200 in total. Working your way backwards, and based on the earlier Affordability Checklist, divide the TCO by 180 (TCO as % of the car price according to length of loan tenure), then multiply by 100 to get the car price that you can afford.
Thus, based on a RM4,000 monthly income, the maximum price for a car that you can afford is RM37,333.
RM800 x 12 months x 7 years = RM67,200 as Total Cost of Ownership (TCO)
RM67,200 ÷ 180 (% of car price) x 100 (as total percentage) = RM37,333
Variables That Determine Your Total Cost Of Ownership
Now, if you’ve set your heart on a car priced more than RM37,000, don’t worry as you may still be able to afford your ideal car. The costings above reflect the approximate maximum amount based on the different variables. However, the variables may be lower depending on the car you are buying. These variables include:-
- Your auto insurance
- Your car maintenance habits and budget
As explained by Sazali Abdul Rahman, Head of Franchise at Allianz General Insurance Company (Malaysia) Berhad, “Be it a new or used car, there are a set of detariff factors that we take into account to determine the insurance premium. These detariff factors include age of vehicle, vehicle make and model, gender (of driver), insured age, high-risk theft vehicle and cubic capacity”.
According to Sazali, used cars usually have a lower insurance premium when compared to new cars. For example, with a 3-year old car compared to a new car, the difference in premium is 4.4% for national cars, 13% for Japanese cars and 22% for European cars. These are factors that you can consider when choosing which car to buy and add to your list of tips for buying a car.
Regular Car Maintenance To Keep Your TCO Low
Meanwhile, regular car maintenance is also important when it comes to keeping your car’s TCO as low as possible. Regular maintenance ensures that your car keeps running smoothly while avoiding costly repairs that can crop up due to poor maintenance. Think about it: getting your car regularly serviced on time is surely cheaper than getting an engine overhaul.
“When it comes to car maintenance and auto parts, choose what is best for your pocket and for your car. If you’d like to better optimize your car maintenance budget, either DIY in the upkeep of some auto parts such as changing your own wiper blades or opt for reputable brands for auto spare parts as they can lower your car maintenance cost by 25-50%”, said Mr Go Boon Wah, Marketing Manager at Bosch Automotive Aftermarket Malaysia.
Mr Go emphasises that regular proper maintenance is the life of the car and it is important to know relevant information on the supporting eco-system such as knowing which mechanic you can trust and which auto parts to maintain and change when needed.
Importance Of Getting Auto Parts From Trusted Suppliers
Sometimes, auto parts from a trusted Aftermarket Auto Parts supplier, such as Bosch, may be just as good as parts from Original Equipment Manufacturer (OEM). An OEM would be the maker of your car. However, parts from an aftermarket supplier could be priced slightly lower. Going with a trusted aftermarket supplier could reduce your Total Ownership Cost substantially over the years. That said, we’d like to remind you to only get parts from trusted suppliers, though. For example, Bosch is a brand recognised for their superior home and DIY appliances, so it wouldn’t be a stretch to believe that they supply quality automobile parts that are dependable. When deciding to go with an aftermarket supplier, please do your research. You want to avoid costly repairs due to using low-quality parts.
Now that you’ve read our tips on buying a car, hopefully you can more informed choices when it’s time to make that purchase. Buying a car is a big deal and it’s important to understand all the costs involved and not just the purchase price.