Graduates – Read This Before Buying Your First Car!

The median monthly salaries and wages of graduates with full-time equivalent principal occupation was RM3,936 in 2018 compared with RM3,550 in 2017, according to the Statistics Department, reports The Star.

This got us thinking, those figures, though they seem slightly ambitious in our opinion – puts graduates in a rather comfortable position to own their first car.

Image credit: www.pixabay.com

And as a rule of thumb, it is normally assumed that commercial banks will offer up a candidate (with good financial standing) a monthly instalment of up to one third of their monthly salary – that means a monthly instalment of circa RM1,300.

This as you might surmise, puts graduates within grasp of cars worth up to RM90,000, which means they can pick anything from a brand new Proton Saga to a Toyota Vios, and even a used BMW (F30) 3 Series, depending on the loan tenures and interest rates.

Any guesses for which of the three 90 percent of graduates will choose?

However, like anything in life, many other considerations – and costs – come along with the ownership of a car. Chief of which are fixed costs such as road tax, loan installments, insurance costs, and quite possibly the most important, the maintenance costs to keep your vehicle running smoothly and safely.

The latter is quite possibly the toughest to account for given prices vary widely from car to car, even more so for used vehicles because there are more variables that need to be considered as a car gets older.

Image credit: www.pixabay.com

Now we are not saying used cars are bad, it is just prospective buyers must be able to account for certain costs – such as premature component failures or major service costs – that might come along the way. On the plus side, buyers can find great condition cars at bargain prices and suffer less depreciation losses over the years of ownership – and that is no bad thing!

Other considerations include costs that come with vehicle usage, such as fuel, toll, and parking charges, these may vary from person to person.

Therefore, to keep things brief and informative – we thought we would compare a few examples and substantiate them with simple math to provide a clearer idea.

Key considerations we have to take into account:

• To compare the ownership we have taken into account two common entry-level vehicles for first time car buyers and a more aspirational vehicle such as the Toyota Vios 1.5L.
• It is assumed that for new cars: a 10 percent down payment, a loan tenure of 5 years.
• In all cases, we have selected the cheapest automatic transmission variant for comparison.
• We used RinggitPlus’ loan calculators prevailing interest rates for calculations of monthly instalments.
• In all cases, for maintenance figures, we have taken into account only manufacturer mandatory service packages, therefore maintenance costs are likely higher if optional service items (such as the air cleaner, cabin filter, brake pads, and brake fluids) are taken into account.

• *Listed vehicle variants, spec and prices as listed on the official website (18/12/19)
• **Financing calculations based on prevailing Kuwait Financial House Ijarah-i (Islamic Hire Purchase interest rates) [RinggitPlus - accessed 18/12/2019].
• ***Insurance rates are based on capital insured sum given by manufacturers. The yearly reduction is solely based on NCD reduction only, sans reduction of overall insured value. Therefore final insurance sums are likely lower than those stated.

But, what about other running costs, such as fuel?

Calculating fuel costs can be a bit tougher for first-time car owners, and they can vary from car to car, and from drivetrain to drivetrain. Some cars are definitely more economical than others, hybrids and modern turbodiesels being the most efficient, but, in keeping with the current example, we'll only consider the naturally-aspirated petrol drivetrain, which is the most common type in the Malaysian market. 

Now, there are many different ways to calculate fuel usage, and the final figure normally becomes more accurate once your typical drive routes are established and track records of petrol bills are there to confirm your fuelling pattern.

But in case you don't there is a rather good agak-agak manner in which to estimate your fuel expenditure depending on your vehicle. 

For normally-aspirated vehicles, it is best not to assume that manufacturer fuel economy figures can be replicated on a daily basis. Since manufacturers benchmark fuel economy figures under highly controlled conditions to evaluate the vehicle's intrinsic efficiency, they cannot account for driving styles, weather, laden weight, and traffic conditions that vary from driver to driver under real-world conditions.

However, you can still use the following numbers to guesstimate your monthly fuel usage:

• For engines between 1.0L and 1.3L: 7.5 litres/100km
• For engines between 1.3L and 1.6L: 8.5 litres/100km
• For engines between 1.6L and 1.8L: 9.0 litres/100km
• For engines between 1.8L and 2.0L: 9.5 litres/100km

Assumed figures are for majority of city driving. These figures normally drop by 10-15 percent when driving on the highway. These figures also typically increase depending on the age and condition of the vehicle.

Hence, we can now approximately account for monthly and annual fuel usage for cars such as the Perodua Myvi and Toyota Vios.

Assuming an annual mileage of 20,000km

• Perodua Myvi/Proton Saga: (7.5L/100km x 20,000km): 1,500 litres (for 12 months) @ RM2.08/litre: RM3,120/year
• Monthly: RM260.00 (fuel cost per month)
• Toyota Vios: (8.5L/100km x 20,000km): 1,700 litres (for 12 months) @ RM2.08/litre: RM3,536/year
• Monthly: RM294.70 (fuel cost per month)

With the final piece of the puzzle now accounted for, we can now approximate the monthly financial commitments a graduate will typically incur when buying and operating their first car.

• Perodua Myvi: RM911.34 + RM260.00: RM1,171.34
• Proton Saga: RM745.00 + RM260.00: RM1,005.00
• Toyota Vios: RM1,529.84 + RM294.70: RM1,824.54

To conclude, the purpose of this article was not to advocate buying one car over the other - all three vehicles listed here are excellent in their own respect - but rather to arm a first car buyer with the relevant knowledge they would require to make prudent financial decisions when it comes to their first ride. 

Also, we hoped to inform that owning your brand new car involves a variety of other costs besides the monthly installments, which financial institutions cannot account for, and hence it is always best to fully evaluate the fixed and variable costs of owning a vehicle before putting down your signature on the dotted line.