Not too long ago, a car dealer named Wan Faris took to Facebook to vent his frustration over an unrealistic car purchase attempt, highlighting the gap between car price expectations and financial reality. A young buyer, earning a basic salary of RM1,700, tried to buy a reconditioned Honda Civic FL1 priced at RM163,000.
To make things even more surprising, the buyer, likely from Generation Z, asked for a RM63,000 discount. The dealer’s reaction reflected the financial misunderstandings that many young Malaysians face when navigating car price and affordability. This story serves as a reminder of the importance of making informed decisions when purchasing a vehicle.
Buying a car is a major financial decision that requires careful consideration. With vehicle loans being one of the leading causes of bankruptcy in Malaysia, it’s crucial to ensure that your dream car price doesn’t turn into a financial nightmare. So, how much should you really be spending on a car? Let’s break it down.
The Reality of Car Ownership in Malaysia
Did you know that 73% of Malaysians aged 18 to 40 are burdened with debt?
According to the Malaysian Insolvency Department, vehicle loans accounted for 14.39% of bankruptcy cases in 2022, second only to personal loans.
Financial literacy isn’t something most of us were taught in school. It takes experience to understand how to manage money wisely. The Employees Provident Fund (EPF) estimates that the median income for single adults in Malaysia is around RM2,500 to RM3,000. This means, after deducting essential expenses, a car budget should ideally be between RM561 to RM770 per month, including loan payments, petrol, maintenance, and tolls.
Overwhelming yourself with an unaffordable car price isn’t worth the financial stress. Instead, let’s explore how to determine what car price fits your salary range.
How Much Should You Spend on a Car?
There’s no one-size-fits-all formula to determine the right car price for your income, but financial experts suggest a few useful guidelines:
1. The 20% Rule
A good rule of thumb is that your car loan repayment should not exceed 20% of your monthly income. This includes all car-related expenses such as insurance, fuel, and maintenance. For example, if your net salary is RM2,800, your car loan repayment should ideally be RM560 or less.
2. The Annual Income Rule
Your car should not cost more than your annual salary. If you earn RM3,000 per month (RM36,000 per year), you should look at cars priced around RM36,000 or lower.
3. The Four-Tyre Rule
Could you replace all four tyres of your car without taking a loan or dipping into your emergency savings? If the answer is no, your car price may be beyond your means.
4. Skimp Now, Splurge Later
If you have a dream car in mind, consider saving aggressively and minimizing transport costs first. Use public transport, live close to work, or work remotely to cut down on expenses until you can comfortably afford the car price.
Car Price vs. Salary: What Can You Afford?
Here’s a breakdown of car options based on different salary ranges:
Monthly Salary: RM1,500 – RM2,000
If you fall into this salary range, it’s essential to be mindful of your budget to avoid financial strain. A car in the RM20,000 – RM35,000 range is a reasonable option.
For brand-new cars, the Perodua Axia is one of the most affordable choices, offering good fuel efficiency and low maintenance costs. However, if you’re open to used cars, you can find solid options like the Proton Saga, Perodua Myvi, or Toyota Vios—though they may be 7 to 10 years old.
Monthly Salary: RM2,000 – RM3,000
With a slightly higher salary, you can expand your budget to around RM40,000 – RM60,000, giving you more choices. If you’re looking for a brand-new vehicle, consider the following options:
- Proton Iriz (RM40,800 – RM54,800) – A compact hatchback with a stylish design and decent safety features.
- Perodua Myvi (RM41,292 – RM52,697) – One of Malaysia’s best-selling cars, offering excellent fuel efficiency and reliability.
- Perodua Bezza (RM33,456 – RM48,356) – A great entry-level sedan that’s affordable and economical.
Alternatively, if you opt for a used car, you can find well-maintained Honda City, Toyota Corolla Altis, or Nissan Almera models that are 5 to 7 years old, providing more features and comfort for the same budget.
Monthly Salary: RM3,500 and Above
If your salary is RM3,500 or more, you have significantly more flexibility in choosing your car. You can afford a vehicle in the RM70,000 – RM90,000 range, including both new and used premium models.
For brand-new cars, some excellent options include:
- Honda City (RM73,851 – RM86,221) – A well-rounded sedan with excellent resale value and modern features.
- Honda Jazz (RM72,171 – RM84,615) – A stylish and practical hatchback with spacious interiors.
- Toyota Vios (RM74,623 – RM87,584) – A durable and fuel-efficient sedan that’s ideal for long-term ownership.
If you’re considering a used car, you can find models from premium brands such as Mazda, Volkswagen, or even entry-level Mercedes-Benz or BMW models, depending on your financial flexibility.
Having a higher salary means you can also consider additional factors such as resale value, long-term durability, and added features when making your purchase decision.
The Hidden Costs of Car Ownership
Most people only consider their monthly car loan repayment, but there are hidden costs that can quickly add up:
Owning a car comes with multiple financial commitments beyond just the monthly loan repayment. One of these recurring expenses is road tax, which varies depending on the engine size of your vehicle. The larger the engine, the higher the road tax amount, making it an essential cost to factor in when choosing a car.
Another crucial expense is insurance or takaful, which needs to be renewed annually. Many car buyers overlook this cost initially, only to realize later that it can be quite substantial, especially for newer or high-value vehicles. Additionally, petrol costs can take up a significant portion of your budget. The more you drive, the more you will spend on fuel, so fuel efficiency should be a consideration when selecting a car.
If you live in urban areas like Klang Valley, parking fees and toll charges can add up quickly, particularly if you commute to work daily. These costs can sometimes be as significant as your loan repayment, making it important to plan accordingly.
Depreciation is another financial aspect that car buyers should keep in mind. Cars lose value every year, and the rate of depreciation varies depending on the brand, model, and market demand. This means that when you decide to sell your car later, you may not recover as much value as you initially expected.
Lastly, maintenance and repair costs should not be underestimated. Routine servicing, tyre replacements, and unexpected repairs can be costly, and failing to maintain a vehicle properly can lead to even bigger expenses down the road. It is always advisable to set aside a portion of your budget for these unavoidable expenses to ensure your car remains in good condition over time.
Final Thoughts: Smart Spending for a Smoother Ride
A car is ultimately just a tool to get you from point A to point B. Whether you’re driving a Proton X50, Toyota, or the legendary Perodua Myvi, the most important thing is ensuring you can pay it off comfortably.
If you’re on a tight budget, consider buying a secondhand car, it can offer great value for money. With proper research, you can find a reliable used car at a fraction of the cost of a new one.
Remember, only you are responsible for your financial well-being. Be sceptical of salespeople pushing expensive cars on low salaries. Instead, use the guidelines above to find a car that fits your lifestyle without compromising your future financial freedom.
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