Let’s talk about price!
In general, used cars are far less expensive than new ones. This is due to the fact that used cars lose value more quickly and can drop to 50% of their initial cost in as little as 5 years. That is what we call ‘car depreciation’
Image source: Wikipedia
Alamak, what’s that? Sounds very complicated, lah!
To put it in simpler words, depreciation is the difference between the value of a car at the time of purchase compared to the value at sale. Of course, it is safe to say that most cars will go down in value, with the main exception of car antiques, lah - their rarity makes them premium.
But, for the majority of other cars, each car model has a different depreciation rate. It is mostly influenced by how ‘lasak’ the car has been through. A car that has been regularly used will lower the current car market value.
So, what’s the average depreciation rate of a car in Malaysia?
Regardless of the model or brand, the value of new cars usually depreciates much faster than old cars. Want to know how it’s calculated? Check out below.
|Age of a car
|0 - 1 year
|1 - 2 years
|2 - 3 years
|3 - 4 years
|4 - 5 years
|More than 5 years
|Determined jointly between the owner and the insurer.
Let’s take Malaysia’s King of Road (aka Perodua Myvi) as an example. Let’s assume that the depreciation rate is as above. Let’s calculate how much it will cost after 5 years of purchase.
Image source: Paul Tan’s Automotive News
Price of a brand new car: RM 54,600
|Percentage of depreciation
|Value of depreciation
|Car value after depreciation
After 5 years, your Perodua Myvi would have lost around 50% of its value. Be reminded that this is just an average depreciation rate over the life of the car. New cars can actually depreciate by 30% in the first year alone but their rate slows down after that.
After buying, need to do maintenance also!
Image source: Astro Awani
Maintenance costs will increase for any car that is more than 5 years old. Since a typical car's lifespan is almost 12 years, we can say that cars ageing any older than this may start having technological issues, which eventually will increase the maintenance cost.
And, most car dealers in Malaysia only offer free servicing warranties for 5 years or 100,000 kilometres. Therefore, after 5 years, you will need to settle all the maintenance fees yourself; no more free labour.
So, before thinking of buying a new car, rajin-rajin find out the maintenance cost first, okay.
How about car loans?
Image source: mStar
For new cars, banks will normally offer a much lower interest rate (as low as 2.5%* p.a.) because of its higher value.
On the other hand, buying an old car (or second-hand) would cost more in terms of its interest rate (approximately up to 4.45%p.a.*), but as a whole, much lower in absolute value.
Most people would just save up and pay in cash if they ‘angkat’ second-hand cars. And if you still want to buy a new fresh-out-of-the-showroom car, just consider not exceeding 60% of your income for monthly repayments (inclusive of other loans you currently have).
*interest rates quoted are accurate at the point of writing
Next, to buy from dealers or direct owners?
Image source: The Star
We can opt to buy our cars through a dealer or directly from the owner. Going to a dealer typically tends to be a little pricier as they would need to mark up the prices to cover operational costs. However, with so many online websites allowing us to publish our listings, it becomes relatively easy to find a matching price.
Now, let’s compare: buying a new car vs a used car
It’s going to be a looooooooonng list, but we’ll make it easier for you! So, here’s a comparison.
|Included in price from manufacturer
|Need to buy warranty
|Obviously, new cars will have the latest media and navigation interfaces. So, if you’re a tech geek, the new cars would be the better choice for you.
|If you are a humble person and want to remain lowkey, going classic may be better for you!
|Typically, there isn’t much of a difference comparing new and old cars. But, hybrid cars (new models) on average saves between 15% to 50% of fuel consumption.
|If compared to hybrid cars, old models would tend to use up more fuel. So, you might have to fork out a bit more monthly on gas.
|Lower interest rates (as low as 2.5% p.a.)
|Higher interest rates (up to 4.45% p.a.) but you can save up and pay in cash!
|Some car dealers offer free servicing warranties for 5 years or 100,000 kilometres. But after that, you’re on your own.
|If the car is more than 5 years old, maintenance costs might be a lot higher considering there might be technological issues.
|Higher insurance rates because of the higher value of the car.
|Lower insurance rates but doing some research could save you from insurance sticker shock.
So, which is the better option in 2023?
There are tons of factors to consider - warranty, latest gizmos, financing and maintenance fees, etc - that go against older cars. However, the most important factor that many tend to overlook is the depreciation rate.
As shown earlier, a 5-year difference could save you 50% of the new car price. It may be more than what you could have saved from getting a new car.
Yeah sure, buying second-hand cars can risk you of malfunctioning and ‘unknown’ issues, that is something you need to do due diligence on. Do your research and expect the problems. Then, prepare a sum of money to fix it up. If you are still keen on purchasing a second-hand car have a look at our Personal Loan Comparison tool to find out the best loan options available to you.
You should still be saving a substantial amount.
But, if you think that new cars are the way to go (time-saving is the biggest factor most people opt for first-hand), then head on over to our handy car loan online comparison tool so that you can select the right one for your budget.
Good luck, and be a smart spender!
*The above article is intended for informational purposes only. Loanstreet accepts no responsibility for loss that may arise from reliance on information contained in the articles.