Bring on the Budget: How Much Should You Spend on Your Car Installment

“Your car loan application has been approved!”. That’s the magic word that every car buyer wants to hear after sending out their loan application. But what happens when you realize that the monthly installment for your dream car might be a bit too much than what you can chew?

Recently, netizens were in for a shock when a man claimed that his loan application for the new Perodua Alza has been approved with a monthly installment of more than RM900, despite his monthly earning of RM1,500. That’s a whopping 60 percent expense for his car installment!

When your car installment takes away more than 30 percent of your income, it’s definitely going to strain your financial budget. Here are some tips to help you budget for your car’s monthly installment.

car installment planning

Prepare a Large Deposit

A large deposit equals a lower monthly installment, so if you are able to put down at least 20 percent into your down payment, it will considerably lower your future monthly installment since you will end up applying for a lesser loan amount.

For example, let’s say you’re interested in buying the new Perodua Alza 1.5L AV D-CVT. According to the official listing on Perodua’s website, the car costs RM75,500. If you put down 10 percent for your deposit – RM7,550, with a loan tenure of 7 years and an interest rate of 3.5 percent, your monthly payment would be RM1,007.

Now, if you put down 20 percent for your deposit – RM15,100, with a loan tenure of 7 years and an interest rate of 3.5 percent, your monthly installment would drop to RM895. That’s a saving of RM112 in your car installment per month.

The 20/7/20 Rule to Ensure a Manageable Car Installment

Another way to budget for your car’s monthly installment is by following the 20/7/20 rule of thumb when deciding the best way to fit a car purchase into your monthly budget.

This is how the 20/7/20 rule works:

  • Pay a deposit of 20 percent: The usual deposit rate when you buy a car is 10 percent, but if you can put down 20 percent into your deposit, you will end up with a much lower monthly installment.
  • Seven year loan tenure: A nine year loan tenure looks like a great deal but when you add up the interest, you are actually paying more than you should for the car. It is best to stick with a loan tenure of seven or five years if your budget allows it.
  • Limit the installment to 20 percent of your monthly salary: Make sure the monthly installments does not exceed a fifth of your total income. This is important not only for your financial health but also for your credit score.

To clearly understand this ruling, we will take a look at the financing option for a used 2015 Perodua Alza SE 1.5 from Carsome which is priced at RM46,400. With a deposit of RM9,253 that covers 20 percent of the total price of the car plus a seven-year loan, you will end up with a monthly installment of only RM551.

estimated budget

If you earn RM3,000 per month, setting aside 20 percent of your salary means you will end up with RM600 and this is more than enough to cover your car’s monthly installment plus you’ll have extra cash that you can set aside for your car’s other expenses such as maintenance, insurance, or road tax.

Don’t Forget the Add-Ons

Owning a car means you also have to consider additional ongoing expenses, aside from the monthly installment that you have to serve – such as maintenance, insurance, and road tax.

Most of the time, people tend to overlook this part of car ownership and it usually catches them by surprise when the time comes to pay it off. 

Road Tax Renewal

In order to drive your car on the road legally, it needs to have a valid road tax. The amount that you have to pay for road tax differs depending on vehicle type, engine capacity, and whether it is a personal or commercial vehicle.

You may refer to the following table to find out how much the road tax costs for vehicles in Malaysia:

Engine Capacity (CC) Base Rate Progressive Rates (PER CC) Road Tax Amount
1,000 and below RM20 RM20
1,001 – 1,200 RM55 RM55
1,201 – 1,400 RM70 RM70
1,401 – 1,600 RM90 RM90
1,601 – 1,800 RM200 RM0.40 RM200 – RM280
1,801 – 2,000 RM280 RM0.50 RM280 – RM380
2,001 – 2,500 RM380 RM1.00 RM381- RM880
2,501 – 3,000 RM880 RM2.50 RM882 – RM2,130
3,001 and above RM2,130 RM4.00 RM2,134 and above

Road tax rates for personal vehicles in Peninsular Malaysia

It’s a crime to drive around without a valid road tax and you have to renew it every year. Failing to renew it on time will lead to a hefty penalty of RM3,000 as stated in Section 14(4) of the Road Transportation Act (RTA) 1987.

Read more: How to Renew Road Tax and Car Insurance Online

Insurance Premiums

You will not be able to renew your road tax if your vehicle does not have a valid insurance policy. It is a legal requirement to have car insurance if you’re planning to drive your car around. There are various kinds of insurance policies that you can choose to buy, but it is advised for you to choose a comprehensive coverage as it usually offers the most protection. 

If you’re not confident to choose an insurance provider on your own, let CARSOME help you find the right provider and policy with CARSOME Capital’s motor insurance. We’ll help you get instant quotes for motor insurance renewal and purchase, as well as road tax renewal with no hassle.

Driving around without a valid insurance policy will incur a substantial fine of up to RM1,000 under the Road Transportation Act (RTA) 1987. Not to mention you will also have to pay for the repairs on your own car and your own injury using your own money if you ever get into an accident.

Read more: Everything about Car Insurance in Malaysia: From Special Perils Coverage to Premiums

Maintenance Cost

Routine maintenance is essential to keep your car running smoothly and to ensure its durability in the long run. It also helps you avoid costly repairs in the case of a sudden breakdown. Here’s how much the average cost of maintaining a car looks like.

Take the new Perodua Alza for example. Based on Perodua’s after sales service maintenance listing that can be found for the new Alza here, the cost of service maintenance for the Alza is as follows:

  • 10,000KM – RM186.40
  • 20,000KM & 60,000KM – RM297.81
  • 30,000KM, 50,000KM, 70,000KM & 90,000KM – RM236.86
  • 40,000KM & 80,000KM – RM398.90
  • 100,000KM – RM633.61

Usually, most manufacturers in Malaysia consider a yearly mileage of 20,000km to be within the normal driving rate. So, taking that into account, it will take you around 60 months to reach the 100,000 km maintenance mark.

If we divide the total cost of maintenance, which is RM3,160.87, by 60 months – you will have to save an additional of RM52.70 per month in order to be able to afford the maintenance cost of an Alza. Additionally, there is also the additional cost of replacing the wear and tear parts of the car that you need to consider such as the brake pads, tires, belting, and many more.

It is crucial to maintain your car because it prevents expensive repairs, safety hazards, and dangerous situations from happening. So, it’s best to look for a car that is suitable with your paycheck or you will set yourself up for a financial crisis in the future.

With that, we hope this guide will serve you well in your attempt to budget for your monthly car installments before you proceed with your car purchase in the future.