5 Common Mistakes We Make When Buying A Car

Getting a new car is one of the major purchases in our lives and if we are not careful, it may be the cause of our financial woes. In fact, 1 out of 4 bankruptcy cases in Malaysia are caused by people defaulting on car loan payments! To avoid being one of the sad statistics, here are 4 common mistakes you should avoid when buying a car:

1. Not Doing Your Homework

Don’t let the car dealer do all the work and propose financing terms that are not favourable to you or worse, suggesting a more expensive car that you can’t afford with a longer term monthly payment.

The internet is your friend. Use it to research on the loans with the lowest interest rates in town for the car that you want. When you walk into the car dealership, you should already have in mind the amount that you are comfortable paying for the new car, the market value of your trade-in car (if any) and your preferred terms of financing. This will make it easier to not give into unnecessary add-ons or model upgrades which will cause serious damage to your budget. Remember, knowledge is power.

2. Going For A 9-Year Car Loan

We often fall into the trap of going for the longest loan period possible just to bring the monthly payment down. By doing this, we are gaining short-term access to cash at the expense of long-term financial gains. This is because most of your money will go down the drain as interest payment.
For example: If you opt to pay for a Ford Ranger over 5 years (RM1,620) instead of nine years (RM1,020), you will pay RM600 more per month. However, the total amount of interest you’ll pay over 9 years is RM20,160, which is RM12,960 more than what you’d have paid over 5 years!

Additionally, people who go for long-term loans often find it painful to continue making monthly payments while at the same time forking out a lot of money to repair and maintain the clunky old car. As such, it’s always best to opt for the shortest loan term possible. Or better yet, pay cash.

3. Not Considering A Second Hand Car

Instead of buying a brand new car, why not consider getting an almost-new car in good condition but at a much more affordable price? There is no shame in buying a used car. A lot of people do.

It’s a fact that a new car depreciates drastically the moment you drive it out of the showroom and up to 20% in its first year. Buying a used car takes advantage of that depreciation, which means you are getting more bang for your Ringgit. You may even be able to pay for it in cash and save a ton of money on interest.

That said, it’s best to have it checked by an independent mechanic before purchasing the car. For a reasonable fee, the mechanic will be able to tell you if the car is a lemon (think of the inconvenience of frequent break downs and hefty repair bills) or if it’s been well-maintained.

4. Underestimating The Cost Of Car Ownership

When it comes to owning a car, the costs go beyond the monthly loan payments, petrol, parking and toll. There’s also the annual road tax and insurance payment, the scheduled maintenance, repairs and depreciation costs. So if you are struggling to meet the monthly payments, you will have more problems when all these other costs crop up.

As such, it’s important to consider all these costs before deciding to buy a car. You may decide that it’s more cost-effective to save up and pay cash for a cheaper car than the fancy one you originally wanted. You may even choose to use that down payment to buy an appreciating asset like a house rather than a car!

5. Omitting To Get Personal Accident Insurance

Most car owners would buy car insurance to protect the vehicle but forget to get Personal Accident coverage, which protects the most important person: the driver behind the wheel. Accidents can happen in the blink of an eye, leaving you with severe injuries that can be permanent. Should such injuries occur, a personal accident plan will help cushion the financial impact that comes from hospital bills and not being able to earn a living.

EZTakaful offers a comprehensive range of personal accident plans that are affordably priced from RM10 per month. The EZCover plan is especially great for drivers because it offers double bonus payouts for traffic accidents, providing coverage of up to RM525,00 and living benefits of up to RM250 in weekly cash. For more info, click here.

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