Best Ways to Buy and Finance a New or Used Car

“Used cars are more affordable and economical”, “New cars function well and can last longer”. Weighing on all the pros and cons, sometimes it is hard for us to decide between choosing a new or used (second hand) car in terms of cost and functionality. Check out our article on the general comparison between buying a new car versus used car to know which one is more worth it.

The intention of this article is not to debate which option is better but rather to discuss the best way to purchase either a new car or used car. Whether it is by cash, personal loan or hire purchase loan; we will drill down the differences for you.

New car and used car buying process

Source: Seventyfour

Before we discuss about the financing part, let’s go through the process required in order for you to purchase a new car or used car.

Buying a new car

To buy a new car in Malaysia, you will need to go through the following steps:

  1. Pay a booking fee
  2. Look for financing options (Cash/Personal loan/Hire purchase loan)
  3. Prepare the necessary documentations
  4. Apply for road tax
  5. Register your car with the Road Transport Department (JPJ)
  6. Apply for car insurance

Usually, the car dealer or seller will assist you with all the required documentation when you are buying a new car. After your car is registered with JPJ, you will receive your number plate and you are ready to pick up your car.

Buying a used car

To buy a used car in Malaysia, you will need to go through the following steps:

  1. Pay a booking fee
  2. Look for financing options (Cash/Personal loan/Hire purchase loan)
  3. Prepare the necessary documentations
  4. Get PUSPAKOM to certify that the used car is in good condition
  5. Apply for car insurance
  6. Transfer ownership from the previous owner at Road Transport Department (JPJ)

If you are dealing with a car dealer or seller, they will assist you with the processes. Their service usually includes sending the car for a car inspection with PUSPAKOM, buying the car insurance for you, etc. You just need to check with them if they provide that kind of service and how much it would cost.

Here are also some tips on what you could look out for while buying a used car:  

i) Physical checking

Mileage, interior & exterior condition, boot & hood condition, mechanic check-ups (i.e. brakes, engine, tires, etc.), any modifications

ii) Documents checking

Grant, service record history, cover note, any records of accidents

Ways to finance your car purchase

Source: Freepik

Generally, there are 3 types of financing that you can choose to pay for your car which is via cash, hire purchase loan and personal loan.

1. Cash

This is one of the easiest and most cost effective way to buy a car regardless if it is a new or used car. A car is generally not a capital appreciation asset. Hence, by using the extra cash on hand that you have to buy a car is a prudent move.

However, for used cars especially those that are 10 years and above, you might need to purchase the car via cash. This is because the older the car, the harder it is for you to secure a loan. Some banks have set the vehicle age limit up to 12 years. This applies to antique cars as well.

2. Hire Purchase Loan

A hire purchase loan (or known as car loan) is a common way to purchase a car. When you apply a car loan with the bank, you are entering into a hire purchase agreement. The bank acts as the legal owner of the car whilst you are the user. In a simpler term, it sounds like you are ‘renting’ a vehicle that is owned by the bank.

After all your instalments are fully paid, then the legal ownership of the car would be transferred from the bank to you. Meaning to say, the car is legally yours after you have fully paid off your loan amount.

In certain cases, a hire purchase loan for used cars is difficult but still possible, as long as your car is below 10 years and still in good condition. With a hire purchase loan, you have to be prepared to secure a lower margin of financing and with a higher interest rate. This means that you will need to be prepared to pay down a larger sum of deposit.

3. Personal Loan

A personal loan can be given to any individual and can be used for any purpose. Personal loan is known as an unsecured loan (also known as clean loan) as the lender does not require any form of security (collateral) for the loan. This means that if you use a personal loan to buy a car, you will own the car.

Personal loan is approved based on the borrower’s creditworthiness whereby the lenders look at the borrower’s credit history record like CCRIS/CTOS, earning potential and repayment ability. So, regardless it is a new car or used car, you can apply a personal loan with no worries.

So now let’s compare which is a better financing option for new car and used car – a personal loan or hire purchase loan?

Comparison between personal loan and hire purchase loan

New car

Source: Perodua

We will use the example of a brand new Perodua Myvi 1.5L AV 2020 which cost roughly RM52,600*.

Usually for hire purchase loan, banks cap the margin of financing to 90%. So in this case, you can only borrow a maximum of RM47,340 from the bank (RM52,600 x 90% = RM47,340). And the remaining 10% (RM5,260) is the deposit that you will need to pay in cash.

For this comparison, the personal loan example that we will refer to is Coop Bank Pertama which offers a promotional interest rate of 2.85%* (for tenure 4 to 10 years). This financing is currently extended to civil servants and selected GLCs workers only.

For the hire purchase loan example, we will refer to BSN MyAuto. The interest rate listed on their website ranges from 2.35% p.a. to 3% p.a. Rates will vary accordingly and at BSN’s discretion. For this example, we assume that the interest rate is 2.65%* p.a.

In the table depict below, we will compare between a personal loan versus hire purchase loan with 90% loan of the car price. The loan tenure is set to a maximum of 9 years.

CBP Personal Loan BSN Hire Purchase Loan
Loan AmountRM47,340RM47,340
Profit Rate Monthly2.85%*2.65%*
Tenure9 years9 years
Interest PayableRM47,340 x 2.85% x 9 = RM12,143RM47,340 x 2.65% x 9 = RM11,291
Interest SavingsRM12,143 – RM11,291 = RM852
Total PayableRM47,340 + RM12,143 = RM59,483RM47,340 + RM11,291 = RM58,631
Monthly InstalmentRM551RM543

*the information disclosed is accurate during the period it was written

As a summary, the difference between getting a personal loan and hire purchase loan is not much. In this case, getting a hire purchase loan is cheaper as you get to save RM852. Hence, if you have the extra cash on hand, it is advisable to apply for a hire purchase loan and pay the 10% deposit. By doing so, it would help you to save up on interest rate.

However, if you find it difficult to pay the 10% deposit upfront, you can always opt for a personal loan. For instance, if you are a government servant, you can choose to apply for a koperasi loan of RM52,600 (full car price) to finance your car.

But you have to be reminded that with a hire purchase loan, if you fail to pay your monthly instalments on time, your car can be repossessed by the bank. However, that’s not the case with personal loan. The lender cannot repossess your car because a personal loan is an unsecured loan whereby there is no collateral required.

Used car

Source: Perodua2u-my

For this comparison example we will use the Perodua Myvi 1.5L SE (2015). The price range now is around RM28,000 – RM40,000* depending on its condition. Assuming that the example we are illustrating costs RM30,000.

As for hire purchase loan, depending on the condition and the age of your car, sometimes the lender might not even approve your loan at 90% financing margin. Plus, you might also end up getting a higher interest rate for the car. For this example, let’s assume that the lender is willing to finance you with a margin of 90%. This means you can borrow from the bank (RM30,000 x 90% = RM27,000). The remaining 10% is the deposit that you need to pay upfront which is RM3,000.

Just like the new car example, we will use Co-op Bank Pertama which offers personal loan with a promotional interest rate of 2.85%* (for tenure 4 to 10 years). This financing is currently extended to civil servants and selected GLCs workers only.

For the hire purchase loan example, we will refer to BSN MyAuto UsedCar. The interest rate listed on their website ranges from 3% p.a. to 3.80% p.a*. Rates will vary accordingly and at BSN’s discretion. For this example, we assume that the interest rate is 3.60%* p.a.

We will compare between a personal loan versus hire purchase loan with 90% loan of the car price in the table depict below. The loan tenure is set to a maximum of 9 years.

CBP Personal LoanBSN Hire Purchase Loan
Loan AmountRM27,000RM27,000
Profit Rate2.85%*3.60%*
Tenure9 years9 years
Interest PayableRM27,000 x 2.85% x 9 = RM6,926RM27,000 x 3.60% x 9 = RM8,748
Interest SavingsRM8,748 – RM6,926 = RM1,822
Total PayableRM27,000 + RM6,926 = RM33,926RM27,000 + RM8,748 = RM35,748
Monthly InstalmentRM314RM331

*the information disclosed is accurate during the period it was written

In summary, it is clear that a personal loan is cheaper in this case by RM1,822. Look out for a personal loan that has an interest rate less than 3% because it is worth taking to finance a used car. Usually the interest rate of hire purchase loan for used cars is much higher as compared to new cars. Depending on the condition of the car, the hire purchase loan interest rate for used cars is usually 3% and above. Plus, if you choose to apply for a personal loan, the chances of getting your loan approved at the full car purchase price is much higher.

Summary

Source: Freepik

A car is a depreciating asset and should never be seen as an investment. A brand new car once it is driven on the road, it loses about 20% of its resale value in the first year and 15% every subsequent year until the 10th year. But with a new car, you get to save up on maintenance cost, as new cars usually offer free servicing. A used car, on the other hand, will require more maintenance cost considering its higher usage.

Whether it is a brand new car or a second hand car, it is best to assess your financial situations first before committing to purchase a car. Do your research and compare all the financing options available out there. Be careful while engaging with lenders. Always make sure that the lender you are engaging with is safe and legal.

If you are a government servant and you are looking for a personal loan to buy a car, Direct Lending is ready to help. We are a personal lending platform that offers bank and koperasi loan with absolutely no charges involved. Use our smart loan eligibility checker for free today!

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