Getting A Car : Cost of Ownership
Thinking of purchasing a brand new car? Take the following into account when you’re calculating your car budget :
- Loan Financing
- Road Tax
- Motor Insurance
- Fuel Economy (Petrol Cost)
- Servicing Cost
- Resale Value & Depreciation Cost
Your ultimate must have factor when purchasing a car is of course, the Ringgits! Unless you have the means to pay off the car in one lump sum, most people take up car loans to finance their chosen wheels. We’ll have a full article on all you need to know about car loans very soon, so stay tuned!
Is this your first car purchase? The first thing that you should know is your financing options. If you just started a job and have virtually no credit record, get someone (usually a parent) to act as your loan guarantor to help enhance your credit standing and enable you to obtain cheaper financing for your car.
Ways to Get a Car Loan
Basically, there are two ways for you to get a car loan, either from a bank or from the car dealership.
Loan from the Dealership
First things first, each car manufacturers have their own authorised car dealers and usually have their own bank panels to make it easier for car buyers. If you’re satisfied with the interest rate given, then go for it. However, the best move before saying ‘I do’ to any of the suggested panel banks is to do your own research and call them up to ensure that you are eligible for the advertised interest rate. If taking up a car loan directly from a bank (minus the dealer’s association) gives you a lower rate, then apply for a car loan separately.
Example: Perodua’s Panel of Finance includes Affin Bank, Alliance Bank, AMBank, Bank Islam, Bank Rakyat, Bank Muamalat, CIMB Bank, Hong Leong, Public Bank, RHB Bank, Maybank Auto Finance, Toyota Capital Malaysia Sdn Bhd.
Pre-approved Car Loan from a Bank
Depending on your credit score, different banks will assess your finances in different ways. Some may give you a higher interest rate compared to the others! So the best way is march to at least three different banks and try to get a pre-approved car loan from each bank. Once you have those, compare all these loans and see which suits you best.
The best thing about scouting for your own car loan without the dealer’s association gives you the added benefit of knowing exactly how much you can afford (or if you can afford the car that you want at all). Although dealers are mindful on your financial situation, their main focus is selling their cars and might push you into purchases that you can’t afford.
Example : Say you’re looking for a Proton car, the flat interest rate from a Proton dealer in-association-with-Maybank ranges from 2.80% to 3.55% p.a., but a car loan from Maybank’s rate is between 2.92% to 3.20% p.a..
Some people prefer one loan financing method to the other, but we say research from both banks and dealerships and negotiate the best interest rate for you before sealing the purchase!
Aside from the monthly car instalments, car owners (that means YOU!) also need to dig up their pockets for annual road tax cost. The cost of your road tax depends on several factors:
- Type of vehicle ownership
- Type of vehicle
- Engine Capacity
- Geographical Location (Peninsular, Sabah, Sarawak)
You can use The SaveMoney.my Malaysian Road Tax Calculator to see your estimated annual road tax.
Similar to road tax, your car insurance also needs to be renewed annually. There are three main types of car insurance :
Types of Car Insurance
- Third Party Cover – This policy insures you against claims for bodily injuries or deaths caused to other persons (known as the third party), as well as loss or damage to third party property caused by your vehicle.
- Third Party, Fire and Theft Cover – This policy provides insurance against claims for third party bodily injury and death, third party property loss or damage, and loss or damage to your own vehicle due to accidental fire or theft. The coverage here is the same as Third Party Cover, with the added coverage of damages from fire and theft of your vehicle.
- Comprehensive Cover – This policy provides the widest coverage and is the most common type of insurance in Malaysia. With this policy type, third party bodily injury and death, third party property loss or damage and loss or damage to your own vehicle due to accidental fire, theft or an accident are covered.
How Much is my Premium (Insurance Cost)?
Car insurance does not come cheap, so do your research beforehand and avoid paying more than you should. Do your own calculation to avoid paying more on your car insurance with our Car Insurance Calculator! Or to find out more information and ways for you to Save Money on your car insurance, read our Car Insurance Guide article.
Fuel Economy (Petrol Costs)
Most people consider the car price and road tax and insurance costs before buying a car, but shrug at the mention of petrol consumption, or have a general belief about a car maker’s fuel economy rating (eg. all Mazda models have poor fuel economy). Sure, petrol consumption is inevitable no matter what car you’ll be driving, but you can actually calculate roughly how much money you need per month for your car’s petrol consumption!
As a rule of thumb, when quoted in km / L you want a higher figure and when quoted in L / 100km you want a lower figure.
Fuel Economy Calculation Example:
Let’s use a Perodua Myvi as an example.
Car : Myvi 1.3 Auto
Fuel Economy : 17.5km / L (combined)
Petrol : RON ’95 (RM2.10 / L)
Note : While the ‘combined fuel economy’ figures are usually viewed with scepticism around the world, for simplicity we can justify the use of combined fuel economy because the majority of Malaysia’s urban and sub-urban population experience a large proportion of roads being highways, and the majority of driving is based on cities filled with both roads and highways.
How do you calculate your petrol costs? Let’s assume that you’ll be driving around 20,000 km per year.
So based on 20,000km range per year;
your fuel consumption will be 20,000 / 17.5 = 1,142.85 litres per year
Petrol Cost Per Year :
1,142.85 liters x RM2.10 (price per litre)
= RM2,399.98 per year (roughly around RM180.00 per month)
So if you have your heart set on a car, get its fuel economy specification from the car dealer and include your petrol costs into consideration!
Save Money on Petrol Costs!
The calculation above does not include the condition of one’s driving (speed, acceleration, etc). If you’re a speed devil, then your petrol costs will definitely increase! For tips on how to Save Money on petrol costs, read our “Save Money on your Car Petrol Costs by up to 30%!” article!
Servicing and Maintenance
Yet another cost factor that people rarely include when calculating their car costs is the service and maintenance cost. For new car buyers (like yourself) : If you already have a specific car in mind that fits your budget, check the car’s service warranty period. Next, contact the service centre and check the service and maintenance package price before purchasing that car and include the cost into your budget!
Most people think Malaysian made cars will be cheaper to maintain compared to foreign imported cars from the Far East and Europe. While this is largely accurate, it has more to do with the average price of vehicle and abundance of service stations rather that a measure of reliability. Needless to say, luxury foreign brands like Mercedes, BMW and Audi will cost a good deal more than that as well.
Our team of nerdy experts have done some quick dirty calculations among the major car manufacturers, and have come up with a quick and dirty rule-of-thumb to estimate your car’s basic servicing cost (assuming two services per year):
Car Price < RM50,000 ≈ 0.8% to 1% to of your car cost
If your car cost is below the RM50,000 mark, expect to pay at least 0.8 to 1% of the car price yearly for your servicing and maintenance purpose.
Cars > RM50,000 ≈ 0.6% of your car cost
If your car cost is above the RM50,000 mark, expect to pay at least 0.6% of the car price yearly for your servicing and maintenance purpose.
Car Depreciation Cost
Depreciation is simply the difference between the amount you spend when you buy a car and the amount you could get back when you sell it or trade it in.
Why Do I have to Consider the Depreciation Cost?
Simply because cars are assets which depreciate upon usage and the passage of time. Unlike most assets such as properties, your car will start depreciating starting from the moment you purchase it and will continue to lose its value every year.
Just how much it might be? It is impossible to know exactly how much your car will cost in the next three, five, or ten years, but generally, you can expect lose up to 15% of the value of your car each year (reducing balance of course).
Cost of Depreciation Example
Jared purchased his Myvi SE 1.3 Auto in July 2008.
Car : Myvi SE 1.3 Auto
Year of Manufacture : 2008
Year 2008 Price ≈ RM51,812.00
A second hand Myvi with the same specification as above costs only RM34,980.00 (mileage : 45,000km) in July 2012. So if Jared wants to sell his car, his depreciation cost is (RM51,812.00 – RM34,980.00) / 4 years = RM4,208.00 per year
Tips to Decrease Your Car’s Depreciation Cost
You can’t prevent your car from depreciating (ie : Sell it for the same price you bought it). But you can try minimising your car depreciation with these tips :
- Buy a car with neutral external colors such as black, white and silver. These colors will most likely still be popular in a couple of years and will therefore sell for more.
- Buy a car with comfort and safety features such as central locking, alloy wheels, CD/MP3 player, navigation equipment, parking assistance, anti-lock braking system. Useful features improve re-sale value.
- Buy a car that has good fuel economy. With most people fearing a rise in the petrol price, they will look for a more fuel economic car.
- Keep your car clean and well serviced. You will get better re-sale value if your car is well kept.
- Try keeping your mileage as low as possible, this will increase the re-sale value of the car.
- Park your car in a garage and consider buying a cover for protection. A well maintained car will sell for more.
How Much Does Your Car Actually Cost?
So with all these costs in mind, how much do you actually need in order to buy and maintain a car? Again let’s take Perodua’s Myvi as an example :
Car : Myvi 1.3 Auto
Car Price (July 2012) : RM49,912.15
Bank Panel : Maybank
Interest Rate : 2.92% p.a.
Down Payment 10% out of total car price = round up to RM5,000.00
Loan Amount = RM44,912.15
Loan Repayment Period : 60 Months (5 years)
Monthly Instalments = RM857.82
Total Interest Cost: RM6,557.17
Total Cost of Vehicle Purchase: RM56,469.32
Road Tax (yearly payment)
Area : Peninsular
Price : RM70.00 / year
Cost over 5 years: RM350
Motor Insurance (yearly payment)
Assuming type of Vehicle : Private Car
Type of Coverage : Comprehensive
Location : Peninsula
First year Sum Insured : RM 40,000
Total Premium ≈ RM1,261.35 in first year
Including NCD and depreciation reducing sum insured, estimated cost over 5 years is RM3,835.00
Fuel Economy (Petrol Cost Yearly)
Per Year ≈ RM 2,171.41
Over 5 years ≈ RM 10,857.00
Servicing Cost (twice per year)
0.8% of RM49,912.15 ≈ RM400.00 (RM200.00 per service)
Over 5 years ≈ RM2,000.00
Depreciation of vehicle
At 15% per year plus reducing balance, your estimated resale value will be about RM20,000.
Total Cost of Ownership:
RM56,469.32 + RM350.00 + RM3835.00 + RM10,857.00 + RM2,000.00 – RM20,000 = RM53,511.32 over the 5 years
This is something like RM10,702 each year just to buy and own a car! Obviously these figures are for illustration only, and the figures will depend on your exact car model and usage.
So there you have it! Put all these costs into your budget when you’re choosing a car to buy.
Two other things that should be taken into consideration are of course your daily toll charges and parking fees. We suppose toll and parking costs are independent of choice of car, so we won’t include them specifically in our calculations here. However, toll and parking fees are unfortunately necessary costs when travelling and they tend to vary depending on your locations. However, there are ways for you to get up to 20% rebate (and other goodies!) on your road travels. Find out how by going here and here!
Getting A Car : Additional Tips
When you’re negotiating the best deal for your car, these tips might help you out:
Get a pre-approved car loan before you go to the dealership
Applying for a pre-approved car loan is not as complicated as you think! You can apply for a preapproved loan straight from the bank or if your desired bank has online loan application banking services, you can get your car loan quota via online.
The best way is to get a few preapproved car loans from several banks and compare them to see which one suits you best (ie: the lowest interest rate for your credit score). So once you’re at the car dealership, compare again your best offer with the dealership’s offer and take the best deal for your new car. Or try to negotiate an even lower interest rate with the dealer.
Take a test-drive
You wouldn’t buy a pair of shoes without trying on them first, would you? The same goes when buying a car! You have to make sure that you choose the right, comfortable and suitable car for your uses to avoid any regrets and further complains after getting the car for only two weeks. There is no harm for you to take the test drive, it is free!!
Take initiative and seek for promotions
Ask the dealer if they have any current promotion because sometimes manufacturers offer cash incentives or 0% Annual Percentage Rate to promote certain vehicles during the festival season (like Hari Raya Aidilfitri promotion). Some dealers might not tell you upfront, so just gird your loins and ask for it.
Cash rebates promotion: Cash rebates can be used to decrease the down payment and at the same time lower the whole loan amount or used to offset the registration fees or taxation.
Low (sometimes even 0%) financing: For some cars which dealers need to shift quickly, they may be willing to offer you low (lower than banks) rates of financing so definitely shop around to see if you can get a good rate!
Try to negotiate the loan interest rate
As you have your own pre-approved loan from your bank, you can use this rate to negotiate with the dealer to get a lower interest rate. If you failed to do so, you still have your best rate at your chosen bank. Or else, if you can’t get any qualified loan from banks because of your poor credit score, you probably have to strike a deal with the dealer. In this instance the interest rate might be higher since you are considered a “credit risk”. So, try to negotiate to lower down your interest rate.
Careful about the “add-ons”
Tinted windows, skirting, plus a funky sticker for your brand new car? Before you say yes to the dealer, remember that the more you purchase the add-ons, more numbers will be “add on” to the total price. So, think carefully about purchasing those add-ons.
If you have enough money to spend, try getting a good price on an extended service warranty for your car. For items like window tint and alarm system, scout other offers outside for a better deal (ask your friends on their alarm system!). For most new cars, rustproofing is actually included in vehicle factory warranty, so you don’t need the double protection.
Don’t relax until you get the car
Although dealers can appear sincere and friendly, their main job is to sell you a car! Be aware of any additional items that they offer even after you have settled the car purchase price and all car financing matters. They seem like they want to help you out, that may be true but keep in mind that they are also aiming to earn as much commission as they can. So just remember that the deal is not over until you actually get the car.