Is the price of a car really just as simple as what’s stated on its price tag?
If you happen to stay or work at a place that’s not very accessible by public transport, chances are, you would need to get a car to get around. If you are intending to get a brand new car in Malaysia, here are some cost considerations that you should take note of.
Amount Of Interest Over 9 Years
If a car has a sticker price of RM90,000, some of us would simply take it at face value and assume that RM90,000 is all we need to pay throughout the lifetime of owning the car.
Sadly, that isn’t true, unless we happen to be one of the few people who can afford to pay the purchase price of a car in cash.
There is more than meets the eye.
If you’re like most people, you would probably need to take out a loan for the car. Besides the 10% downpayment that we would have to cough up upfront, we’d have to pay the remaining 90% of the car’s value in monthly installments.
If we were to buy a Toyota Vios (one of the best selling models in Malaysia) which has a sticker price of roughly RM82,000 for its entry 1.5(J) automatic model, we would have to pay a 10% upfront deposit of RM8,200.
Since there are 9 x 12 = 108 months over 9 years, assuming an average annual interest rate of 3% for car loans, we’d have to pay a total of RM867 every month. That would mean paying a total of RM93,636 in monthly installments over the course of 9 years, not including the RM8,200 deposit that we already paid upfront.
That would mean paying a grand total of RM8,200 + RM93,636 = RM101,836 for a car we thought would only cost us RM82,000! That’s close to RM20,000 more.
If we were to buy a more comfortable family car like the Toyota Camry, which has a sticker price of roughly RM164,900 for its 2.0(G) variant, we would then have to pay an upfront deposit of RM16,490.
Assuming an average interest rate of 3% over 9 years, we’d then have to pay RM1,745 per month over 108 months (9 years), which amounts to a total of RM188,460 in installments & interests. This would translate into a total cost of RM16,490 + RM188,460 = RM204,950. What appeared to be a RM160,000+ car turns out to actually be a RM200,000+ car. That’s a difference of RM40,000!
A brand new Toyota Camry would have an annual insurance cost of roughly RM4,600 while a brand new Toyota Vios would have an annual insurance cost of RM2,400.
The cost of insurance does get cheaper as the value of our cars depreciate with each passing year and the onset of NCB, or No Claim Bonus, which could reduce our annual premium by up to 55%.
Even without getting into any accidents, we should still expect to pay anywhere from RM10,000 to RM20,000 in insurance costs for a Toyota Vios and RM20,000 to RM40,000 for a Toyota Camry over a 9-year period.
While a 1500cc Toyota Vios would incur an arguably negligible annual road tax of RM90, a 2000cc Toyota Camry would incur a slightly higher annual road tax of RM380.
That still adds up to RM810 for the Vios and RM3,420 for the Camry over 9 years.
Maintenance costs can range from RM90 (cost of engine oil + oil filter + air filter + cost of labour) to a few hundred ringgit per oil change every 3 months or 5,000 km (whichever comes first) depending on which service center we choose to visit.
Throw in the costs of replacing bigger parts such as tyres, batteries, timing belts, spark plugs, alternators, shock absorbers, and the total costs would average out to be another few thousand ringgit over the span of 9 years.
Total Additional Cost
If we were to take into account the costs of interests, insurance, road tax and maintenance over the years, the additional cost of owning a brand new Toyota Vios and a Toyota Camry can come up to RM20,000(interests) + RM10,000(insurance) + RM1,000(road tax) + RM10,000(maintenance) = RM41,000 more than the sticker price of the Toyota Vios & up to RM40,000 (interest) + RM20,000 (insurance) + RM 3,500 (road tax) + RM20,000 (maintenance) = RM83,000 more than the sticker price of the Toyota Camry over the years.
Now that is quite a lot of money!
The figure above assumes that we do not encounter any major mechanical issues over the years or get caught by any unforeseen circumstances such as flash floods and hail storms that are not covered by our standard insurance policies because they are considered to be acts that are beyond our control.
What Can We Do?
For the majority of us, we have no choice but to bite the bullet and take out a loan to get ourselves a car simply because we cannot afford to pay the full amount in cash and a car is a necessity for us to get to work.
The sticker price of a new car is often not the real cost of the car, which is likely to be much higher once we factor in all the costs we’ve just discussed. With that in mind, perhaps we should be more mindful of our budgets when choosing a car for ourselves and when determining whether we can truly afford to own the car we would like to buy.
As financially literate individuals, it wouldn’t make good sense for us to buy a car that we can barely afford and be enslaved to it. We would be better off buying a more affordable car or a used car (once we’ve acquired the skill and knowledge to pick a reliable used car) rather than buying a brand new car in a higher price range that we thought we could afford to come to a later realisation that we actually couldn’t.
Any car that is safe, reliable and can get us from point A to point B comfortably would be a good car. We just have to pick one that we can also truly afford.
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DollarsAndSense Malaysia is a website that aims to help people make better financial decisions, one interesting, bite-sized article at a time. Like us on Facebook to stay in touch with our latest articles.