Buying a car is an important financial decision when you start working. While a car makes daily life more convenient, ownership involves more than just paying monthly instalments. There are also additional costs such as fuel, toll charges, parking fees, road tax, insurance, maintenance, and repair expenses when the vehicle breaks down.
New Car or Used Car?
Before purchasing a car, you need to decide whether to buy a new or used vehicle. Many people believe a new car is better because it usually requires less maintenance, but it is also significantly more expensive.
Therefore, your decision should depend on your financial ability. If a new car is beyond your budget, a used car that is still in good condition can be a more practical option.
Smart Car Buying Tips
- Compare different car models to find one that best suits your needs and budget. It is also helpful to seek advice from family members or friends.
- If you are buying a used car, have it inspected by a trusted mechanic or through a PUSPAKOM inspection.
- Consider the resale value if you plan to change your car in the future.
- If you are taking a loan, choose a financing plan that matches your affordability and check the interest rate offered.
- Prepare a budget that includes all costs such as monthly instalments, fuel, tolls, parking, road tax, insurance, and maintenance.
How Car Financing Works
Cars are commonly purchased through hire purchase loans. In this arrangement, the buyer is considered the hirer while the financial institution remains the legal owner until all payments are completed.
Once all instalments are fully paid, ownership of the vehicle is transferred to the buyer according to the agreement.
Financial Considerations and Interest
Hire purchase interest is usually calculated using a flat rate method, with a maximum limit of 10% per annum under the Hire Purchase Act 1967.
Example:
- Car price: RM50,000
- Down payment (10%): RM5,000
- Loan amount: RM45,000
- Interest rate: 5% per annum
- Loan period: 5 years
Calculation:
- Interest: RM45,000 × 5% × 5 = RM11,250
- Total repayment: RM45,000 + RM11,250 = RM56,250
- Monthly instalment: RM56,250 ÷ 60 = RM938
Important Matters in Hire Purchase Agreements
Late payment charges of up to 8% per annum may be imposed on overdue instalments. Therefore, payments should be made on time to avoid penalties or the risk of repossession.
A vehicle may be repossessed by the financial institution if:
- Two consecutive instalments are not paid
- The owner passes away and payments remain unpaid for more than four months
To reclaim the vehicle, all outstanding instalments, repossession fees, storage charges, and penalties must be settled.