(This article was originally published on the 15th October 2017 and updated on the 5th February 2020).
The majority of Malaysians, especially those living in the urban city areas will own at least a car. Many conclude that the main reason to own a vehicle is to facilitate convenience. As for some, the option of using the public transport system for daily transportation may not be as convenient.
Cars do not come cheap in Malaysia, especially imported cars since there are several taxes that you have to pay for. So, you may then be wondering whether you should buy a used or a new car. Of course, this really depends on your individual financial situation. Here are some of the important questions you should ask yourself before buying a car:
- What is my overall budget for a car?
- Can I afford to pay at least 10% of down payment for the car that I want?
- Am I eligible to apply a hire purchase loan (in addition to all my current loans)?
- Can I afford the annual insurance and road tax?
- How long do I plan to keep the car?
- What is the purpose of me owning a car?
These questions play an important role. Ask yourself these questions so that you do not end up making big mistakes. For example, if you are looking for a car to transport your large family, then you will have to consider a larger car like an SUV, MPV and etc.
If you would want to modify your car, then you probably would not want to buy a brand new one for the fear of damaging or spoiling it as you may add and replace parts. Now let’s compare both the new and used cars briefly in terms of price, maintenance costs, loan and road tax insurance.
Used Cars generally cost way lesser than new cars. This is because Used Cars depreciate faster and can reach half of the original price in just 5 years. Let’s look at the comparison between New and Used Cars. We would select the most popular car brand and model that Malaysians prefer as an example.
**The prices quoted above are correct at the time of writing
2. Maintenance Costs
For any car that is over 5 years old, you can expect that the maintenance costs will go up. The average lifespan of a car is almost 12 years in 2018 so naturally cars older than this age will start giving technical problems which means you will have to fork out more for repairs.
Additionally, most Malaysian car vendors only provide 5 years or 100,000 km of free service warranty. For example, Honda offers a 5 years’ warranty with unlimited mileage to their new models. This means that you will have to take on any problems yourself after this time.
If a Used Car is less than RM10,000, usually you would not need to apply for a hire purchase loan to purchase it. Most people would just save up and pay for the car in cash. The downside of taking a loan for a Used Car is to pay an interest fee of approximately between 3.3 – 4.6%* per annum. The interest rate for Used Car is much higher than the interest rates you pay for a New Car which can drop to as low as 2.5%* per annum (interest rates quoted are accurate at the point of writing).
You will also have to ask yourself whether you can afford to apply a hire purchase loan as the monthly repayments (when added with your other loan repayments) should not exceed one third of your income.
4. Road Tax and Insurance
In addition to the loan that you may want to take, you also have to consider whether you can afford the insurance and road tax. Insurance is higher for New Cars and lower for Used Cars since their values are higher also.
Here is a comparison table for annual insurance premiums according to the car age and model. Calculations are based on standard comprehensive coverage plans without any extra policies and done at CarBase.my’s estimation calculator (with location: Peninsula, no NCD discounts).
**The prices quoted above are correct at the time of writing.
As for road tax price, it is the same for both Used and New Cars. For 1.0 cc vehicles in Peninsular Malaysia, the yearly repayment is RM55 whereas 1.5 cc vehicles are RM90.
So Should I Get a New Car or Used Car?
Both New and Used cars have their own pros and cons. New Cars often get a bad reputation because they depreciate very fast and do not represent a good investment, unlike houses or other properties. However, New Cars function well and can last longer than used cars.
Moreover, Used Cars are much more affordable in terms of pricing whereby you have the option to pay in cash. For those car owners who does not mind driving an older version car or does not want to spend the extra time and money to take care of a car, a Used Car is a more viable option. Users can enjoy the freedom and worry less about the depreciation rate as well.
In conclusion, choosing a new or used car really depends on your personal financial condition and what you want from your car. If you need any financial help by getting a personal loan, please reach out to us here at Direct Lending.