Buying a car in Malaysia is a pretty pricey
affair. But no matter how expensive a car can be, with our current state of
public transport, many Malaysians have little choice in the matter.

To
some folks, owning a car is more than just to take you from point A to B – it’s a
matter of pride and they take very good care of their cars with constant
grooming and even modifications.

Whatever your reasons for purchasing a
vehicle, be it out of convenience and necessity or for the love of cars; the
most important factor to consider is getting the most value for your money.

The
common question many would ask themselves is whether they should buy new or buy
used. But which one is the most economical? And what are the cost involved in
buying either a new or used car?

New vs Used

Despite the price tag of a used car being
obviously lower than a new one, that doesn’t mean you’ll always be getting
value for money with a used car. In the same way, getting a new car might be
great, but unlike property prices, a new car loses its value much quicker.

Used cars are great value for money if you
are able to find one that is in good condition and has been well-maintained by
the previous owner. Discerning such condition from just a cursory visual
inspection is difficult but luckily for owners; PUSPAKOM requires mandatory
fitness inspections on car name changes. This forces the previous owner to
subject the car to a rigorous check
before transferring the car to someone else.

If a car loan is involved,
there will be a check required for
hire purchase purposes also. Once this is done, if the car is found to be a
lemon; you can decide to terminate the agreement to purchase.

The decision will be multi-pronged.
Consider these questions when deciding:

1. Do you have a particular car in mind or
   do you not mind anything that is reliable and relatively aesthetically
   pleasing?
2. What is your budget and which cars will
   it accommodate, new or used?
3. What is the most important aspects in
   car ownership to you (Look and feel; hassle free; taking price in revamping a
   fixer-upper)?
4. How long do you intend to keep your car?

A simple example based on that would be:
Adrian likes modifying cars but doesn’t want to ruin a brand new vehicle. For
Adrian, buying a second-hand car cheap and then spending more of his budget on
fixing and modification makes the most money sense. Contrast this with his
girlfriend, who just wants a reliable car to get to work and fits her budget; a
new locally produced, inexpensive car may be the best bet.

Always choose the car for your taste and
budget as it isn’t necessarily a one-size fits all.

Once you’ve decided on the car you want,
the next step is getting a car loan.

Car Loan

The interest rate for a used car is typically
3.6 – 4% (unless you have an unusually attractive credit rating, some banks may
offer as low as 3% but this is difficult to get), which is significantly higher
compared to that of a new car with the lowest at 2.3%. The higher interest rate
actually inflates the price of your already heavily taxed vehicle (which, mind
you isn’t new).

But even with the higher interest rate,
used cars are still much cheaper than buying new when factoring average depreciation cost. It is generally preferred for more expensive models as such
luxury car prices are almost as much as a low cost apartment or house these
days.

Very few can afford the monthly repayments even with a lower interest
rate. To get the best deal on your used car loan, don’t settle on the first
bank you see. Do a bit of car loan homework.

When buying new cars, you may be able to
get a good car loan deal through the car manufacturer themselves. Most, if not
all car manufacturers will have tied-in deals with banks or hire purchase
companies to give their customers the best rate to encourage the sale of new
cars. Even so, it’s still better to compare the rates of other banks which may
give you a better deal.

Down payment and warranties

Depending on where and from whom you’re
purchasing the car from; you may have to pay a bit more or less in terms of
down payment. Downpayments for both new and used vehicles are usually 10% but
many car manufacturers are waiving this requirement.

Even companies dealing in
more luxury vehicles such as BMW are offering new buyers the option of putting
no money down. Used car dealers are rarely able to offer full loans mainly
because the banks don’t want to risk large sums on a used car. This is because
hire purchase contracts are often very risky (default is high and repossession
doesn’t always work out to give them their money back) for banks and many are
reluctant to lend.

Used cars also rarely have warranties, so you would have to
be prepared for some minor repair unless the car is given a clean bill of
health by PUSPAKOM.

New cars have the advantage of needing almost
no down payment, and the loan cover up to 90% of the cost of the car. This can
be an advantage but it does mean either taking even longer to pay off your
loan, or paying more monthly. New cars do come with warranties that could save
you in terms of maintenance costs.

However, as the owner of a new vehicle;
don’t seek to sell quickly as depreciation will prevent you from even repaying
your remaining hire purchase much less seeing any extra for another
downpayment. New cars depreciate as much as 30% in the first year alone, after
which it slows.

Depreciation costs

One of the major drawbacks of buying a new
car is that it depreciates a lot within the first few years of your purchase.
While depreciation costs are linked somewhat to how saleable the particular
model is and how much you’ve cared for it; general depreciation will happen
even if you’re a super-careful owner who services his car every 3 months and
keeps the cushion wrappers on!

Here’s an example of depreciation costs for
both local and continental cars. The chart below shows the cost of a local car,
both new and used and the amount of depreciation it has gone through in the
past 5-6 years.

Year of Registration	Item	Amount
NEW 2008 (RP in 2008)	Proton Saga BLM (Auto)	RM37,998
USED 2008 (selling in 2014)	Proton Saga BLM	RM19,500
	Depreciation Percentage	48.2%

Here’s the same calculation for a new and
used continental car.

Year of Registration	Item	Amount
NEW 2008 (RP in 2008)	BMW 320i Sports	RM245,800
USED 2008 (selling in 2014)	BMW 320i Sports	RM118,800
	Approximate depreciation Percentage	51.7%

*Prices
are found online and are accurate during time of research. Prices of used cars
differ based on dealer and condition of car.

Both cars experienced depreciation at
similar percentages but the price of the continental car fell further as is
usually the case. Because continental cars are some of the most expensive in
the market, buying used means you wouldn’t have to bear the brunt of the
depreciation costs that occur during the first few years and as they are known
to be sturdy and dependable cars, five years won’t necessarily equate you
buying a lemon unless you’ve found the one-off dud that was trashed by its
previous owner.

Also, although the percentage is similar; the amounts make a
huge difference. 50% off an RM200,000 car is RM100,000 but only a matter of
RM30,000 on an RM60,000 vehicle. This makes the continental car much more
affordable after a few years.

So which is the best?

It really depends on you. Both cars have
pros and cons and as shown earlier; some people are more suited to old cars
than new ones. Of course, the other thing which will help you decide is your
budget. No sense hankering over a new car if you can’t afford it! Budget on how
much you can afford to pay back throughout the years ahead. Then choose the car
most suited for your habits and lifestyle.

 

• TAGS:
• Car Loan Applications
• Car Purchase
• Cars
• New Cars
• PUSPAKOM
• Used Cars