At the end of the day, it all comes down to a matter of cost and how long you’re willing to commit to the loan (unless you’re one of those handful of people who’s got deep pockets or rich parents).
In any case, let’s look at what you need to consider when buying a new car – as far as cost is concerned.
Research first
One should conduct research on the vehicle first before visiting the dealer, says Lam, a Kuala Lumpur-based vehicle dealer.
“Read reviews online, in the newspapers or magazines. They usually provide great insights into whether it’s worth buying the car in the first place. Ask yourself – is this something you really need?
“If you know someone that owns a similar vehicle, ask him or her what it costs to service and maintain it, or how much the spare parts cost. Factors like road-tax and insurance cost should also be looked into,” he says.
Managing your cashflow
Once you’ve decided on what you plan to get, ask yourself – what sort of impact will it have on your cashflow?
“Will it affect your savings towards more important goals, like retirement and saving for an appreciating asset like a home?
“Or will the extra financial commitment of hire purchase (HP) payments put you in a negative cashflow situation, which may spiral into a credit card debt situation or delay your saving plans for more important things,” asks Success Concepts Life Planners chief executive officer Joyce Chuah.
“There are other transportation alternatives to having a car,” she adds.
According to Jeremy Tan, licensed financial adviser and syariah financial advisory for Excellentte Consultancy, the monthly instalment of the vehicle should not exceed one-third an individual’s take-home pay.
“This is to ensure the capacity to pay and service the instalment. It is not viable to maximise the limit as there will then be no provision for mortgages, such as purchasing a house.”
HP rates and tenure
Earlier this month, interest rates of HP loans rose by some 40 basis points. Industry observers believe the increase to be minimal and unlikely to create any significant impact.
Tan notes that the HP tenure has been extended up to seven years (from nine years earlier), mainly to help reduce the number of monthly instalments and reduce the burden to finance the purchase.
“However it comes with a price of paying more for ownership of the vehicle in the long run. Motor vehicles as depreciating assets may not garner well especially in longer financing tenures as the outstanding repayment amount will be higher than the value of the vehicle in later years when it needs to be disposed of.”
Tan says a general guideline would be to finance the vehicle for not more than five years or, if possible, three years.
“The latter means a higher down-payment and monthly instalment,” he says.
Chuah says buyers should negotiate their HP rates.
“A lot of buyers accept the HP rate at face value thinking that it is non-negotiable. For some car companies, they throw in freebies for your car but may not give you a competitive rate (left to right pocket syndrome).
“Ask for less freebies and reduce the HP rate. After all, more money in the pocket is usually better than the freebies you get or may not even need.”
She adds that HP rates are flat rates, unlike mortgage rates.
“Flat rates do not take into account the time value of money and repayments do not reduce the original loan amount. Hence a HP rate needs to be converted to an effective rate or average percentage rate (APR) and this is usually stated in the HP agreement after it is signed – which is too late for any changes.
“Do your own calculations first on the HP rate offered to you. Ask your financial planner to assist you if you’re unsure. Different HP packages with different tenures will have different APRs. Once you have done the calculations, opt for the lowest APR on the basis that your cashflow can support the monthly repayments.”
Service and resale value
Another factor to consider is that many car deals come with free maintenance of between three and five years, says Chuah.
“However, be wary about such offers. Check if they include just free service or free service and labour and parts. The difference between the two makes a lot of difference especially when parts and labour are on the higher side for the original equipment manufacturer providing the service.”
Also, one should take into account the fact that some vehicles depreciate faster than others – which will affect the car’s resale value.
“A nice branded car but with little demand locally can mean lower re-sale values. That is why many lament that a branded car depreciates faster in value than a ordinary car,” says Chuah.
“Normally, the demand for branded cars is less than the common car on the road. Having said that, not all branded cars have poorer resale value. For some popular branded vehicles, especially if the car is well taken care of, resale values can be good.”
by eugene mahalingam, thestar.com.my
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