Should You Buy A New Or Used Car?
- Details
- Published on Wednesday, 26 February 2014 11:38
- Written by DIANA CHAI
New or older C-class?/Google ImagesBUYING a car in Malaysia is a pretty pricey affair. With all those taxes and considering the cost of maintenance and fuel; it’s almost a luxury. But no matter how expensive a car can be, with our current state of public transport, many Malaysians have little choice in the matter.
Of course, there are those who purchase vehicles for convenience and transportation whilst there are others who truly enjoy car-ownership: it’s an interest and a sense of pride beyond the purpose of getting from point A to B. Such owners take very good care of their cars with constant grooming, enhancing and even modifying.
Whatever your reason for purchasing a vehicle, be it out of convenience and necessity or for the love of cars; the most important factor for many is getting the most value for money (or as much value as is possible considering the over-inflated vehicle prices). The common question then becomes: should you buy new or buy used? Which one is the most economical? And what are the cost involved in buying either a new or used car?
New vs Used
Despite the price tag of a used car being obviously lower than a new one, that doesn't mean you'll always be getting value for money with a used car. In the same way, getting a new car might be great, but unlike property prices, a new car loses its value much quicker.
Used cars are great value for money if you are able to find one that is in good condition and has been well-maintained by the previous owner. Discerning such condition from just a cursory visual inspection is difficult but luckily for owners; PUSPAKOM requires mandatory fitness inspections on car name changes. This forces the previous owner to subject the car to a rigorous check before transferring the car to someone else. If a car loan is involved, there will be a check required for hire purchase purposes also. Once this is done, if the car is found to be a lemon; you can decide to terminate the agreement to purchase.
The decision will be multi-pronged. Consider these questions when deciding:
1. Do you have a particular car in mind or do you not mind anything that is reliable and relatively aesthetically pleasing?
2. What is your budget and which cars will it accommodate, new or used?
3. What is the most important aspects in car ownership to you (Look and feel; hassle free; taking price in revamping a fixer-upper)?
4. How long do you intend to keep your car?
All these considerations will help you decide if you want a new or used car. A simple example would be: Adrian likes modifying cars but doesn’t want to ruin a brand new vehicle. For Adrian, buying a second-hand car cheap and then spending more of his budget on fixing and modification makes the most money sense. Contrast this with his girlfriend, who just wants a reliable car to get to work and fits her budget; a new locally produced, inexpensive car may be the best bet.
Always choose the car for your taste and budget as it isn’t necessarily a one-size fits all.
Other factors
Once you’ve answered these questions, it’s on to the other considerations.
1) The Hire Purchase loan: the interest rate for a used car is typically between 3.6 - 4% which is significantly higher compared to that of a new car which can be as low as 2.3%. But even with the higher interest rate, used cars are still much cheaper than buying new when factoring average depreciations cost.
When buying new cars, you may be able to get a good car loan deal through the car manufacturer themselves. To get the best deal on your used car loan, don’t settle on the first bank you see. Do a bit of car loan homework.
2) Down payment: Depending on where and from whom you're purchasing the car from; you may have to pay a bit more or less in terms of down payment. Downpayments for both new and used vehicles are usually 10% but many car manufacturers are waiving this requirement for new cars. This can be an advantage but it does mean either taking longer to pay off your loan, or paying more monthly.
3) Depreciation costs and price affectation: One of the major drawbacks of buying a new car is that it depreciates a lot within the first few years of purchase. While depreciation costs are linked somewhat to how saleable the particular model is and how much you’ve cared for it; general depreciation will happen even if you’re a super-careful owner who services his car every 3 months and keeps the cushion wrappers on!
Here’s an example of depreciation costs for both local and continental cars. The chart below shows the cost of a local car, when new and when used 5 years on and the amount of depreciation. The model is the same but not the exact cars.
Year of Registration
|
Item
|
Amount
|
2008 (RP in 2008)
|
Proton Saga BLM (Auto)
|
RM37,998
|
2008 (selling in 2014)
|
Proton Saga BLM
|
RM19,500
|
Depreciation Percentage
|
48.2%
|
Here’s the same calculation for a continental car.
Year of Registration
|
Item
|
Amount
|
2008 (RP in 2008)
|
BMW 320i Sports
|
RM245,800
|
2008 (selling in 2014)
|
BMW 320i Sports
|
RM118,800
|
Approximate depreciation Percentage
|
51.7%
|
*Prices are found online and are accurate at time of research. Prices of used cars differ based on dealer and condition of car.
Both cars experienced depreciation at similar percentages but the price of the continental car fell further as is usually the case. Because continental cars are some of the most expensive in the market, buying used means you wouldn't have to bear the brunt of the depreciation costs that occurs during the first few years and as they are known to be sturdy and dependable cars, five years won’t necessarily equate you buying a lemon unless you’ve found the one-off dud that was trashed by its previous owner. Also, although the percentage is similar; the amounts make a huge difference. 50% off an RM200,000 car is RM100,000 but only a matter of RM30,000 on an RM60,000 vehicle. This makes the continental car much more affordable after a few years.
So which is the best?
It really depends on you. Both cars have pros and cons and as shown earlier; some people are more suited to old cars than new ones. Of course, the other thing which will help you decide is your budget. No sense hankering over a new car if you can’t afford it! Budget and how much you can afford to pay back throughout the years ahead. Then choose the car most suited for your habits and lifestyle.
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