As Malaysians, cars are an indispensable tool for our everyday lives. There’s certainly no doubt about it. Indeed, it does often feel like buying your first car as a fresh grad is more akin to a rite of passage in our culture than anything else.
And while some may argue that public transportation is more than sufficient to fulfil our commuting needs, there are certain parts of the country where the public transportation system is severely lacking — although it is slowly improving over time. That being said, whatever your reason may be, servicing a car loan in Malaysia is one of the toughest investments that you may have on your financial portfolio — especially if you’re a freshly graduated, working adult. For those that are really, really in need of a car, you may be wondering if there is a universal formula to own one. We’re here to tell you, yes, there is. When it comes down to buying a new car, two things you should always consider include the cost and what you can afford as a freshie.
Can I afford A New Car?
There’s a very straightforward formula that you may use to guide you on your car’s budget. Fret not, it won’t be a massively complicated formula involving big numbers. Simply put, the price of the car that you can afford to buy should be equivalent to or less than your annual gross income.
Allow us to give you a review of this hypothetical scenario. The average starting salary for a fresh graduate in Malaysia could range from RM2,500-3,500 depending on your industry. Let’s utilise the lower number here to be as realistic as possible. The annual gross income for an RM2,500-earning fresh grad would then amount to RM30,000 per year.
Using this figure and referring to a Malaysia car website, a viable car that the fresh grad in question could realistically purchase would be the Perodua Axia E 1.0 manual, which is priced at around RM24,000 sans car insurance. But you should also keep in mind that this is the cheapest Malaysia car that is available right now, and it doesn’t even come with some of the basics like a radio.
Taking this particular model into consideration, if you were to place a downpayment of 10% on a five-year loan (3% interest rate), then you would be paying roughly RM404 per month. And if you plan on taking longer to pay off the loan, then the loan repayment values come out at RM303/month for a seven-year loan or RM247/month for a nine-year loan. Do also keep in mind that the longer you take to repay the loan, the higher the interest rate. Thus, it would be wise to repay your loan in as short a duration as possible.
Buying A New Car is Not As Straightforward As That
Price tag aside, plenty of new car owners forget that buying a car is more than its price as you’ll need to consider the many, many fees that come with owning a vehicle. It is important to note that the total cost of ownership for a brand new car includes running costs that aren’t limited to maintenance fees, petrol prices, toll fees, and even parking.
Let’s further use the Axia E as our example here. It is the cheapest car that you can buy in the market today, but that doesn’t mean the running cost is equally cheap. Yes, the running cost for a cheaper car will also be cheaper, though it won’t be that much cheaper. The running estimate for basic maintenance (excluding tyres and brake pads) for an Axia E for the first five years is around RM2,500 or about RM50 per month. The Axia’s 33-litre fuel tank would then cost you up to RM67.65 (RM2.05/l) for a full tank of RON95. Of course, this is subjective to the frequency of use for your car and the price of petrol at the time.
But what this entails is that fresh grads who opt to buy a car close to their annual gross income would have to live very frugally as they also need to take into account many non-car-related costs of living including the monthly statutory deductibles (EPF, SOCSO, etc.), as well as rent, food, utilities, and the like.
So Should I Buy A Car Then?
Yes and no. As we’ve already put forth, you should use the suggested formula as a guide to evaluating your finances in order to determine whether or not you’re ready for the financial responsibility of purchasing a new car. Always take a close look at your monthly expenditures so that you may gain a better understanding of how much you can actually spare to afford a car. This is the most important takeaway from this piece that you should take note of.
After all, if there is no real need for a new car (where public transportation is available), we’d recommend that you hold off on purchasing a new car. Likewise, if you do intend to buy a new car for necessity’s sake, the aforementioned Perodua has some of the most affordable options in the Malaysian car market today.