Monday, May 23, 2011

5 Reason why you shouldn't buy a new car?

    We shouldn't buy a new car at the beginning of career especially living in this country . Most of young adults as soon as they land that first steady job, they become slaves to the car payments. What make things worse are a unfair AP policy which impose on import car's buying, the price of import are usually triple of the price of buying of same car in other country. It's way too overprice and not worthy to buy new import car or new national car. Both of it is damn overprices & don't fall into familiar trap of buying an expensive car.

    The wise and wealthy know that you should never buy a new car.  In fact the wealthy know how to get a bargain and also look for value. They let someone else take the depreciation on the new vehicle. The Millionaire Next Door also documents the fact that most millionaires drive older or used automobiles. However, don't get the impression that these millionaires drive crappy cars such as 30 years old BMW car.

Warren Buffett use Signature Series Lincoln Town Car instead of Ferrari (till 2006)

There are 5 reason why one shouldn't buy a new car.

  1. Depreciation

    Definition of depreciation is "A reduction in the value of an asset with the passage of time, due in particular to wear and tear". As soon as you drive your new vehicle off the lot, the vehicle loses its value. Vehicles depreciate rapidly during the first few years.  The average new car loses 12.2% of its value in the first year, according to; on a $20,000 car, that’s $2,440, or more than $200 a month. Some cars depreciate even faster, depending on demand, incentives offered and other factors. Why we should take an automatic loss when we don't have to and why not let someone else take that hit instant? Not only will you be able to save money (or buy more car), but you’ll pay less for insurance.

        For example, a brand new Perodua Kancil retail price is about RM29000 ($9628). When i brought a used 10 years old Perodua Kancil two years ago, it's only cost me around RM10800  ($ 3585). Perodua Kancil lose 63% of it's value in just 10 years of time frame. You lost approximately RM18200 in just 10 years if you buy a brand new Kancil car. Although my car  is already 12 years old, it's still doing a great job. As long as i take good care of it, the maintenance cost will be as minimal as a brand new Kancil

  2. Higher Insurance Premiums

       When you take out a loan to buy a new vehicle, your lender(bank) will require you to carry full coverage. Of course, if you're driving around RM50,000 vehicle you should have full coverage anyway. Insurance is much more expensive on newer vehicles. Obviously it will cost more to replace a new more expensive vehicle than less expensive older model.

  3. Opportunity Cost

        When you spend your money on one thing, you can't buy something else with it. This is what economists call opportunity cost. Another different definition is "The difference in return between a chosen investment and one that is necessarily passed up." Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond such Amanah Saham Wawasan 2020 yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%).

        If you're rolling around in a RM50,000 vehicle, that's RM50,000 you could have invested in  a risk-free government bond. I know I'd rather make a small 6% return than negative return (as the value car depreciation).However, most people aren't even doing that. They're going backwards because they owe money and have to make a car payment.

  4. Car Payments

       Who in their right mind wants a car payment?  There is no reason why an adult with decent income and even a modest education would choose to make a car payment.  If you can't pay cash, you can't afford to drive it. I've never had a car payment and I never will.  I pay cash for my vehicle.  It's amazing how much money you can save and invest when you don't have a car (or mortgage) payment to make every month.

       For example : A friend of mine brought a brand new Proton Saga Special Edition last year. A brand new Proton Saga Special Edition will cost you around RM45,500. He have to pay RM600 for car payment installment every month for 3 years which is not including interest rate. Let's assume that interest rates for 3 years payment installment is 3%. Total interest that he have to pay in 3 years time is RM2730. Total car payment for a brand new Proton Saga SE is RM48230 (RM45500 + RM2730). I can buy a brand new laptop for the interest that my friend have to pay to his lender.

  5. Approved Permit Policy

        Unless you are ridiculous rich, you should never buy a imported car in Malaysia.    
  6. Malaysian Government ripping off citizen of Malaysia for the last 30 yrs with AP policy designed to benefit a few well-connected native and the politician of Ruling Party. They have robbed millions of citizens in this fiasco, under the pretext of protecting our local industry. For example, in the United States of America, a 2009 model BMW 535i Sedan is selling for about USB50,367.00. This is only RM178,0000 here in Malaysia. The same BMW sell in Malaysia for about RM450,000 which three times higher than the prices in the US. We are a developing nation. Our land and labour are much cheaper and why our cars so expensive. It doesn't make any sense at all. We are paying ridiculous high prices to support an out of date, out of touch with reality motor car policy.

          Unless you are very rich person, you shouldn't buy a new car at all. Car is an asset that will lose it's value over a period times due to wear and tear. Is it cool to own a brand new car just to impress your family, friends and colleagues. How much price that you need to pay for your cool? Are you willing to become a slave of your own car payment? What is the purpose of owning a car? To impress people with your brand new car or you just need to have a car  to go anyway? Think again, when you want to buy a car.


      1. hahaha, believe it or not, i am the very rare ones who doesn't own a car, because i just take the LRT~~ :p

      2. That's Good. Then you don't have to worry a lot of thing such summon, road tax, car insurance and etc :P

      3. looking to invest on something else instead of a car :)

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      6. I disagree with this post, I think consumers should absolutely look to purhcase new vehicles... However, I would say that you should not purchase a new car without having car insurance that you can count on.

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