Both new and secondhand cars have their own set of advantages and disadvantages, especially when it comes to costs. Getting a new car can be rewarding and exciting but on the other hand, a secondhand car may be more cost-effective. Now, before venturing into placing a booking, there are several aspects to consider before you plunge into making this big-ticket item purchase.
The table below will give you a snapshot of what you should know to help you decide.
table
Now, let us explain what all these means:
Know what You Are Paying For
- Car Loan – Hire purchase (HP) is a type of car finance that can be used to cover the costs of new or secondhand vehicles. HP allows you to pay for a car in instalments over a set period of time. It’s important to remember that you do not own the car until the final payment is made. Before applying for a loan, the first important thing to note is your budget and your credit health. For those with a poor credit history, it is advisable to maintain a prompt repayment habit for up to 12 months before your next loan application. Those planning to buy a used car priced less than RM15,000 for example, may not apply for a hire purchase loan and would just save up and pay in cash. This is more cost-effective as compared to taking a loan and incurring an interest cost.
- Interest Rate – This is a common practice by the bank as an exchange for the service offered to you, which comes in the form of a percentage. If you are purchasing a used car, the downside is having to pay a higher interest rate as compared to when you pay for a new car. The interest rate is calculated on an annual basis and most banks offer a competitive interest rate of around 2%-6% p.a, depending on if your car is new or used. One way you can save on the interest rate is by reducing the repayment period.
- Down payment – You would need to pay at least 10% of the car’s value upfront. Banks often require down payments, but even if they don’t, it is still a good idea to do so. Why? This would mean paying less interest, having lower monthly payments, and protecting yourself from owing more than the value of your car. This applies to both new and used cars.
- Car Insurance covers the liability that you will have to pay to the third party in the event of accidental death, bodily injury, or damages to the car. If you have a No-Claim Discount (NCD), you could get up to a 55% discount. It is an entitlement given to you if no claim has been made under your policy for a year with the existing insurer. This then translates into reducing the premium you must pay for the following year. This applies to both new and used cars.
- Road tax must be paid by all car owners, new or used cars. For example, Myvi utilises a 1500cc engine and the road tax would cost you RM90. The larger a vehicle’s engine, the more road tax is payable. Road tax is used to pay for road network maintenance nationwide. Currently, the government has an incentive for Sales Tax and Service Tax (SST) exemption for new car purchases until the end of June 2022. However, it is only applicable when you start paying the loan on a new vehicle only.
- Maintenance is another cost to bear when owning a car. For a Myvi, the maintenance schedule is every 10,000KM or every 6 months, whichever comes first. Maintenance is also split into two – minor and major. For new cars, you are bound to maintain your car at an authorised service centre as it is part of the warranty requirement. Secondhand cars on the other hand can have more service dealer options.
- Cost to repair means rectifying a malfunction whereas maintenance is to upkeep the car’s optimal condition. Most used cars may be prone to higher repair costs depending on the age of the car. It is best to set aside a small amount monthly for any unexpected cost of repairs. As for new cars, this would not be an issue as there is a warranty for any manufacturer issues.
- Miscellaneous – wear and tear items such as brake pads, batteries, and tires are examples of costs incurred down the line that can cost quite a bit when it needs to be renewed. This applies to both new and used cars.
Does A Car Have an Appreciation Value?
The short answer is no. Did you know that the value of a car depreciates over time? Unlike buying a house for investment purposes, your car is not considered an investment. Depreciation affects both new and used cars, which refers to the value of your car dropping as it ages and increases in mechanical wear and tear. However, the rate of depreciation varies greatly depending on the vehicle’s make, model, demand, cost of upkeep and other factors.
New cars depreciate faster than used cars. After five years, your car could be worth roughly half of what you initially paid for. Depreciation tends to slow down once a car reaches the five-year mark, and essentially stops by the time a car is 10 years old. For example, if you buy a Perodua Myvi for RM55,300 today, you will probably lose between 40 to 50 per cent of its original value if you sell it in the next five years. You would need to consider this before making a decision.
So, which option should you decide on?
This depends on what you’re prioritising and the factors that are important to you. One crucial aspect is being financially healthy before venturing into any loan commitments and this is when you know your financial standing and eligibility for obtaining credit. To know your creditworthiness, you can check your CCRIS statement and latest i-SCORE on your Personal Credit Report Plus (PCRP) today. You can also learn more about Experian i-SCORE here or check out other perks during Experian’s Credit Health Month.