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Should I Buy a Car in Kuala Lumpur?

One of the most common conversations among my friends is about car ownership. Owning a car seems to be necessary for many Malaysians. However, ever since the pandemic, many people are working from home or hybrid, and find their cars remain parked and unused for days or sometimes even weeks at a time. 

 

If you’re wondering “should I buy a car?”, there are various factors to think about before taking the plunge. After all, owning a car is a big commitment and responsibility. 

 

Cost of Ownership

 

Some may think that the purchase price of a vehicle is the cost of ownership. In fact, when you factor in other costs such as financing, maintenance fees, insurance, road tax, etc., the cost of ownership is in fact more than just the purchase price of the vehicle. All these costs differ depending on the vehicle, but often, these ancillary costs go in tandem with the purchase price – the higher the purchase price, the higher the other costs. 

 

You may also consider the parking cost and prepare an emergency fund for road accidents too if you own a car. 

 

The utility value of a car

 

Usually, people purchase a car as a mode of transportation. However, you have more options nowadays, which means a car may not be as useful as before. 

 

These days, rail transportation is extensively accessible, particularly in the Klang Valley, and encompasses the services of Keretapi Tanah Melayu (KTM), Light Rail Transit (LRT), and Mass Rapid Transit (MRT). Not only do these public transportation options cost less (you can get unlimited access at only RM50 per 30 days), but utilizing public transport also means less hassle as there’s no need to be focused on driving or other common modern-day problems like traffic jams. 

 

In addition, there are ride-sharing platforms such as Grab if you prefer less crowded transportation. You can also consider renting a car with GoCar on special occasions. So with all these developments, one should really consider the utility value of a car before pulling the trigger to purchase one. 

 

Depreciation

 

The value of a car will drop over a period of time. Depreciation starts the moment the car is delivered to you and the rate of depreciation can vary for different vehicles. On average, a vehicle tends to lose 10% to 20% of its value annually, and as such, it’s not surprising that cars are often referred to as depreciating assets!

 

Credit score

 

Generally, a credit score indicates a consumer’s creditworthiness. Before qualifying for financing, creditors (lenders) such as banks will evaluate our credit score. Usually, a higher credit score represents a better credit standing and lenders will be more confident that you’re able to repay future debts as agreed – making you more creditworthy. 

 

In addition to this, having a higher credit score might also allow us to enjoy a better financing rate, resulting in a lower amount of interest to be repaid, which means you can save more. The opposite is usually true for those with lower credit scores. But here’s a tip to have a better credit score – repay all your loans in a timely manner. Doing this allows you to get a better credit score than people who don’t have any loans.

 

Debt Service Ratio (DSR)

 

This ratio represents how much of our income is needed to service the debts you have, and it’s commonly calculated in monthly terms. Some of the regular debt payments include home loans, property investment loans, personal loans, study loans, and car loans. A conservative benchmark for this ratio is around 30%, therefore it’s important to be mindful of your DSR before applying for a loan. Those with DSR of more than 30% should be more cautious about their spending especially when it comes to applying for new loans.

 

Your Available Cash Flow 

 

Once you acquire a car loan, not only is your cash flow affected by the monthly repayment of the car loan but you’ll also be affected by other expenses such as petrol, parking, car insurance, and toll charges. With higher expenses, cash flow could be tighter which may result in fewer savings available to be channeled to grow our wealth. 

 

Should you buy a car?

 

After taking all these factors into consideration, you’re now in a better position to weigh the pros and cons of buying a vehicle rationally. Ask yourself – are you willing to sacrifice all the above considerations just to get a depreciating asset? 

 

If you are unsure or unconvinced, then maybe taking a Grab is a better option as you won’t have to worry about the costs and monthly repayments, which could have a detrimental effect on our financial well-being in the long run. 

 

Nevertheless, buying a car does have its upside. Some of the benefits include convenience, personal safety, and privacy. So, buying a car may not necessarily be bad. Alternatively, you may consider getting a second-hand car instead, although this too comes with various cost considerations such as maintenance and repairs. 

 

You just have to be aware of all the factors and spend within your means so that you can optimize your money!  

 

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