Choosing between a brand new ride and a second-hand one doesn’t have to be hard. 

You may have heard financial advice about not buying yourself a brand, new car. If you come across articles, personal money management sources and experts online, more often than not they’ll probably state that new cars are unnecessary, dangerous to your financial health or even an outright waste of money. 

If you live in Malaysia, the issue of personal finance may be on your mind, especially right now with the pandemic. However, is buying a first-hand vehicle as opposed to a second-hand car really a bad idea? Are there any scenarios or circumstances that might justify indulging in those fresh new wheels?

Do the homework

The issue of whether or not to buy a car is probably quite personal. Whether you’re inclined to get a new or old ride, consider doing your research first. Even the world’s richest, most passionate car collectors and drivers (those who spend hundreds of thousands of ringgit a year on cars) are still making the mistake of buying stuff on a whim. Such impulsive thinking opens the door for emotion-based decision-making, either towards the car or towards the cordial salesperson, instead of facts.

You might want to spend time investigating residual values, reliability, servicing scores, and prices. Given that the availability and prominence of any given model (the two factors that determine pricing) can vary widely by region, it is particularly crucial to identify the average price individuals in your area paid for the particular model you’re after.

Ask yourself certain crucial questions

In Malaysia, cars don’t come cheap, especially foreign cars since there are a few taxes you have to pay for. So then you might wonder if you should buy a second-hand car or a new car. That depends on your financial situation. Here are several important questions you might want to ask yourself before you buy a car. 

  • What is my overall car budget? 
  • Can I afford to pay at least 10 per cent down payment for the car I want? 
  • How long am I planning to use the vehicle? 
  • Can I afford the yearly road tax and insurance costs?
  • Have I factored in the maintenance costs of the car?

These questions play a key role. Ask such questions so you don’t end up making serious mistakes. For instance, if you’re looking for a vehicle to transport your big family, you’ll need to consider a bigger car like an SUV, MPV, and so on.

what to do after road accident

Buy cash when you can

The cheapest way of buying a car is to fund everything or a portion of it in cash. That’s because you are going to be paying interest on just about any loan or finance deal. Make sure you have sufficient savings left over for an emergency upon paying for your car. If you don’t have enough savings to fully purchase the car, use whatever you can afford to put down the largest deposit you can make.

Some people are concerned whether buying in cash while trigger an audit from the tax department (LHDN). If the amount is small below RM50,000 it is not likely to trigger an audit. As long as you are able to explain the source of funds it is not a major concern though whether from savings or an inheritance.

Personal loans could work too

If your credit rating is good, you could get a personal loan from the bank, building society or finance provider at a good rate. This can be used to have cash on hand for purposes such as the initial amount for a downpayment without having to wait until you find a car then only applying for a loan. Personal loans also are useful when you cannot get an auto loan for the car such as a very old vehicle or a project car to work on.

The costs can usually be spread over one to seven years. Make sure you don’t secure the loan against your property. If you struggle to keep up with repayments, you’ll be placing your home at risk. Search for the best interest rate by comparing the APR (annual percentage rate, which involves other charges that must be paid in addition to the interest). Do be aware that personal loan rates can carry higher rates.

Consider the extra costs

Besides the loan you might want to take, you must also consider whether you can manage the insurance and road tax. Insurance for New Cars is higher and lower for Used Cars seeing as their values are higher, too. As for the price of road tax, the same is true for both Used and New Cars. The annual repayment for 1.0 cc vehicles in Peninsular Malaysia is approximately RM55 whereas 1.5 cc vehicles are around the RM90 range.

Weigh the pros and cons

Both new and used automobiles have their advantages and disadvantages. New cars may have a bad reputation because, unlike houses or other properties, they depreciate very quickly and do not make excellent investments. New cars do work well though and can last longer than used cars, and typically have less maintenance issues.

Also, used cars are far more cost-effective in terms of pricing, so you have the option of paying in cash. A Used Car is a more viable option for those car owners who don’t mind driving an older version car, or who don’t want to spend the money and time taking care of a new car. Used car owners also have the privilege to enjoy the ride and worry a little less about the depreciation rate.

 

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What other considerations helped you decide on which car to buy?