Which car can I afford to buy?

Those of you who have read my blog for awhile would notice that this is one of my pet peeves. Every once in a while I have to rant about our beloved nation’s extortive price of cars. Just a quick comparison, A Honda Jazz in the UK cost about 13k pounds, while in Malaysia, you would have to fork out about RM110k. A simple absolute comparison (using RM5 per pound as the exchange rate) would give RM110k vs RM65k, almost double! And that has not taken into consideration our lower salary rate and lower buying power. A fresh grad in UK earning 2k pounds per month vs a fresh grad in Malaysia earning RM2k per month or a McD staff in UK earning 3 pounds an hour vs a McD staff here earning RM3 an hour. Can you imagine how nice it would be if we earn 2k per month and a car cost 13k? We could save up and buy a good car with cash! But of course, reality checks, our currency and economy does not command such luxury. That does not irk me as much as the fact that we are further burdened by all the taxes and levies and whatnots (guess by who) that had doubled the car price that we have to pay! It irks me that we have to take loans up to 9 or 10 years to be able to afford a car. We are burdened by these high cost of living, such that we have less choice of how we want to spend our time, less time to do or think about other matters, because we have to work hard and long hours about earning money. Sure, these taxes are a great source of income for the government, and it’s because we don’t have much choice. It’s not like we can call up a friend staying in another country and ask their help to buy us the cheaper car like we’d ask them to buy a book or a handbag. It has not always been like this. My father told me that in the late 70’s and early 80’s, a new Toyota car cost less than RM10k and car loans are unheard of then. Of course, fresh grad salary then is probably about RM1k, but still RM1k to RM10k is still a lot better than RM2k to RM80k today.

Ok, actually what I really mean to write in this post is to share my personal rule of thumb when it comes to buying car, how much can one afford. But the above just had to come out, don’t they? Hahaha.. Straight to the point, and I know most people probably wouldn’t agree with me, but personally, I think that one can afford to buy a car that cost as much as he or she earns in one year. How do I arrive at this figure? I personally feel that 5 year is the maximum period of loan that is reasonable for a car loan also. Naturally, the shorter, the better. Bear in mind that interest rate or hire-purchase rate for a car loan, since it’s a depreciating asset, is similar to that of a personal loan (interest rate multiplied by the number of year), rather than the reducing balance type like a housing loan. So, the longer the loan period, the more interest we’d have to pay. Say the interest rate is 4%. A 5 year tenure would then yield total interest of 4% x 5 years = 20%, hence the total cost of the car would be 100% + 20% = 120%. There’s 60 months in 5 years, so 120% divided by 60 months is 2%, which is a quarter of a month salary (0.25*100%/12 months), which I feel is the reasonable percentage to spend from one’s monthly income. Even this feels a lot, especially if one intends to take up a home loan soon. Imagine, if I’m already servicing a monthly car instalment that takes up 25% of my monthly salary, I’m only left with 8% for a home mortgage instalment (33%-25%, banks usually approve a loan if the total monthly instalment for all commitments is less than a third)!

But let’s just say a quarter from the monthly salary is okay for now. What car can we buy? Let’s assume that a fresh grad has a job with RM2k per month (continuing from premise above, even though I know a lot of examples where they are earning less). The cheapest Perodua is Viva 660 BX which cost RM25k, hence just about affordable. The cheapest Proton is Savvy which starts from RM33.5k, which is out. The alternative for them, if they want to keep to the 5 year at 25% rule, is either to buy a second-hand car, or to fork out a bigger deposit from the savings (assuming they have some savings, else may have to borrow from family members). The former is a viable alternative he or she is someone who is relatively car-savvy and knows more about a maintaining and performance of car (which I’m not) other just driving it, which is crucial both when it comes to assessing and buying the second-hand car, and thereafter maintaining it.

To share our personal car-buying experience, we took both options. Our first car is a second-hand Proton. It was 18 months old and we bought it at about 65% of the price of a new model. We’re lucky because we had the help of my father and brothers when assessing the car. Alhamdulillah, despite a major accident and some minor ones that only involves cosmetic repair (mostly due to my driving), the car is still in good condition today (after owning it almost 8 years) and doesn’t give us much trouble. Its loan tenure was for 4 years. Our second car is smaller (in size and engine capacity) but new (Perodua), we used some savings to pay for a bigger deposit, and opted for a 3-year loan. After using it for almost 5 years, it still feels like new (to me, the not-car-savvy driver), again, despite its share of cosmetic repairs. Alhamdulillah.

Being content and happy with our cars, however, doesn’t stop me from wishing for a better car. One time during a journey for a department lunch, we were talking about cars and I mentioned that my dream car is such-and-such. A colleague challenged, “Why is it a dream car? If you want, you can buy one today,” implying that I can afford the car. He may be right, but I really don’t feel like tying myself to another 5-year loan. Not when the cars we have are serving our current needs, Alhamdulillah. I still couldn’t help sometimes feeling ‘embarrassed’ when I wasn’t able to offer rides for lunches because my car were ‘too small’ or when I see the clerk driving a more expensive car, Astaghfirullah. May Allah help me to eliminate this attachment to material things.

I guess what I really want to say is, especially to young grads who just started out, eager to start a life, be careful when it comes to making these kind of decisions, consider the long term impacts. A good car is a nikmat, but perhaps there’s a need to re-consider the desire to own an expensive, branded, and stylish car (want vs need).

Phew. For someone who is not-car-savvy and claims to profess a low ambition on the type of car she owns and drives, this turns out to be quite a long post!