how much should i spend on a car
Money Management

The Real Answer to ‘How Much Should I Spend On A Car?’

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How much should I spend on a car? I’ve thought about this question many, many times.

The answer is simple: whatever is the amount, I should make sure that I can afford it. Like every other purchase.

But it’s also not that simple, because if it is, how come 1 out of 4 bankruptcies in Malaysia is due to car loans?

If you’ve been wondering how much you should spend on a car and avoid it being repossessed by the bank, here are some answers. Thanks to all contributions from the RoR audience!

#1 – How many % of monthly salary to go towards car payment?

How much should a person spend on a car, actually?

Some said 15% of monthly salary just for the car instalment:

Tasya OmarIdeally, the monthly loan repayment should not be more than 15% of the monthly income. Of course, not everyone gets RM5k as their first salary. If one is disciplined enough to put aside RM800 per month – RM500 for monthly loan repayment, RM300 for the upkeep/ spare parts and whatnot – I think that should be ok.

Some said no more than 1/3 of their pay:

Jonathan Goh – Not more than 1/3 of their pay or the monthly repayment. If people follow the principle of partitioning their monthly wages, they will have enough to cover the petrol and car maintenance.

Let’s say a guy who brings home RM3k after deducting EPF. His monthly car payment should be RM1k. Now if he is savvy he will get a Myvi with a monthly payment of RM800. He now can save RM200 for the car in case of emergencies/auto insurance

Some base it on annual income, too:

(Effectively 8.33% of monthly salary for car instalment, and no more than 15% of monthly salary for all car expenses)

Amirah Nazarudin – I followed that the car price can be equivalent to 36 months of your salary, at most. I heard this advice after attending a seminar 3-4 years ago. Couldn’t remember who it was.

But to me, a car is a liability. I’ll try not to spend so much on it. Having Proton is good enough. If I do want to splurge I’ll go for Toyota or Honda.

(Effivetively up to 25% of monthly salary for car instalment)

So… it looks like it’s common to spend between 8-33% of your monthly salary on car payments. That looks like an okay amount right? You still have 67-92% of your salary to play around with.

No, not really, because…

#2 – Car ownership costs much, much more than you think

Your car instalment may be as cheap as a few hundred ringgit per month, but you need to pay for a bunch of other stuff too. Depending on variables like your car model and frequency of usage, you have to at least double or triple the car instalment amount.

You need to pay for the road tax. The car insurance. The car service and maintenance and car washes. The petrol and tolls.

Additionally, and unfortunately, car ownership is a major contributor to unexpected expenses too. Throughout the duration of car ownership, many will have to shell out money for major repairs after getting into accidents, to replace batteries and alternators, to fix the aircon, to get new tyres, to settle unexpected summons, and more.

So not only you need more money than you think for car-related expenses, it is essential to have emergency savings.

This prompted this rule of thumb by a RoR audience:

Viknesh Victor SekaranMy rule of thumb is to only buy the car you want if you wouldn’t think twice about the cost of changing all 4 tyres. For example, Vios continental tyres would cost around RM1k+ to replace. You can get more familiar with tyre prices by Googling the tyre specifications

#3 – The lower the cost of car ownership, the better

So by now you know that if you have RM1000 extra in your monthly budget, you shouldn’t get a car with RM1000 monthly instalment. You should instead get a car that costs, say, half that amount, or even less. Because you’re going to need the other half for the other car-related expenses.

There are two ways to reduce the cost of car ownership:

(1) Get a basic car with minimal cosmetic add-ons

Andaq FithryI spend very minimal on the basic. No extra, no accessories, no mods. Extra is want, not need. At my age, I don’t want to spend money on strut bars, gt-wings or performance kits. Those are extras. I’d rather spend on other kinds of extras like flood insurance, windshield coverage, etc.

(2) Buy a secondhand car and pay it in full

This works really well if you have savings. By paying for a car upfront and in full, you’re eliminating 5-7 years worth of monthly car instalment payments.

It’s a popular strategy among personal finance bloggers, too. Here are some that I know:

You can also combine (1) and (2) – that would significantly lower the cost of car ownership for sure!

#4 – What if the dream car that you really, really want is out of your budget?

My dad is a car guy, and while I don’t understand his love for cars, I know that it’s something that makes him really happy. I like seeing him happy.

I think it’s okay to want your dream car. If you can’t afford it now, then the solution is two words: delay gratification.

These guys suggested saving up and making a huge down payment for the car:

Calvin Boey – (To get your dream car,) delay the purchase by a year or two, place the money aside and put a huge downpayment.

Samuel JinI think owning a car you will really like to drive is important regardless of the price because modern vehicles are depreciating asset anyway. Save up enough to pay more on the downpayment so that instalment won’t be huge burden afterwards.

While these guys suggested avoiding car ownership first:

Moses Francis – Personal take is, if single you no need a car. You can just rely on Grab and trains. I’ve sold my car and never been happier. I believe the relationship status matters too (with car ownership). Especially if a person is married – they might have some emergencies with kids and can’t rely on Grab or public transports.
Caleb WoonFor me, I used a simple calculation. If the total amount used for public transport and ride-hailing such as Grab is less than the cost of owning a brand new Perodua Axia (petrol, instalment and other fees), then I won’t get a car yet. 

Last words

You may think that a car purchase is a practical decision. But let’s not forget it is also an emotional decision.

You may have these thoughts yourself:

  • I am cool and edgy, so I should get that cool and edgy car so everyone knows it (me).
  • I need freedom and convenience. And the ability to go anywhere I want. (me).
  • I have a family. I don’t want people to think I can’t provide for them.
  • I need to impress my clients. A cheap car won’t cut it.
  • I am single. Need to show potential partners that I have money.

All of the above are valid points. The car you choose does reflect your personal identity. You do want your family to be as comfortable as possible while travelling. Some clients you’re hoping to conduct business with do care about wealth and status.

But all of them may also push you to buy a car that’s out of your budget. And cause your bankruptcy.

Instead of ending this article with ‘don’t buy a car that you can’t afford to pay’ tone, I want to ask you this instead: what car do you want and why do you want it? What exactly about it is appealing for you?

Let me know in the comments section. A little bit of soul-searching and self-awareness exercise will do you good 🙂

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  1. Hi Suraya,

    Thanks for a great blog, we really enjoy following it. I agree with Moses and Caleb that we should question is if a car is even necessary. There is an increasingly high coverage of reliable public transportation in urban areas, this compounded with environmental and economical factors (petrol prices can’t remain subsidized forever) should further support a car-less lifestyle. I’ve never owned a car in my life and find it quite surprising that the norm is to buy a car before a property. I do however appreciate that a car is a necessity/useful for families.

    1. Hi Mr Money,

      Thanks for your kind words!

      Tbh right, I dont have a car myself and love not having the commitment, but I do miss having one. Driving is fun. I made lots of great memories with it – taking friends out for impromptu mamak sessions, road trips with the family, things like that. Ugh writing this out sucks. I do want one, but it just doesn’t make financial sense, so I wont.

      P/s – enjoyed your post on how the OPR will affect you 🙂

  2. This is a very emotional purchase. Too many factors will come into play also subjected to your profession; if you’re in sales/field job you take a cheapo/small car so that you can “gain” from milege/car allowance claims. If you’re into insurance/real estate where image is important you need a flashy car to give a good impression. If you live miles away, you need a comfortable car with nice audio/gadgets to make your traffic crawl berable.

    As for myself; I need a big car/SUV whereby you can chuck 2 bicycles at the back seat for a weakend outing.

    1. Hi oneders,

      Thanks for your comment, I love the strategy to gain from mileage/car allowance claim!

      Your dream car sounds cool 🙂

  3. Hi Suraya, Its Kenny (again)

    At the end of the day what really matter was to get from point A to point B. I did discuss this issue with one of my close buddy few days ago & we both agree with 1 thing. Better have good amount of money inside wallet rather than paying RM1000+ over for loan for 7-9 years (we earn RM2000+ below monthly). I use viva and going to settle next year. 9 years yo! hehe

    1. Hey Kenny! Welcome back bro

      I agree with you and your buddy! But also you know we’re not car people, cannot fully understand, so for us whatever car will do lah as long as nice enough cheap enough. For others, they care about the engine and aesthetic and specific functions

  4. car is necessary especially right now when i already have 3 children. bus/GRAB dont have car seat for child.and cheap car dont have the essential safety equipment, so you cant settle for perodua axia, it is not safe for your family…would you pay rm400/month(8% of salary) to save money, or rm800/month(15% of salary) for your child/family yeah, emotional purchase indeed, but i rather fork out extra money knowing i do my best for my family safety rather than compromising it on saving money. i mean, there are other way for us to save money(eat less, cheap clothes etc) and we can earn money more by learning from you guys so i wouldnt worry much about earning extra money…heck, i always being cheapo and stingy…wearing free/cheap shirt,eat free/cheap home, i dont have AC/astro/coway.using prepaid cost me rm30 only a month..

    1. Hi jimbo,

      You’re right, a safe and comfortable car is a necessity for families. Warms my heart to hear how you sacrifice in some areas for your children’s sake. Here’s praying for rezeki for you, insyaallah

  5. My family has never had a new car, and I grow up being told that don’t ever buy secondhand car, you can never know the problem comes with it.

    One year ago I was thinking if I’m going to buy a new car, I’d go for new myvi since it is one of the affordable and good quality car in Malaysia.

    One year later I finally persuaded myself I will buy a sedan car if I need to buy a car – after been through unable to fit wheelchair in a myvi. (Even if u fit it into the back seat, u hardly fit another person, and u always need a helper when fetching a disabled person going out for medical appointment)

    Still driving a 20 yrs old sedan now hahaha.

  6. Hi Suraya,
    I’m fresh grads and I’m thinking of buying a car soon and here, I came across your article. I have a car already actually but it’s old so that’s why I want to change it >< But then your questions make me rethink again. Especially in this current situation I should think deeply about it right? Thinking to get a car loan because fortunately, I have a permanent job now but when you said that car loan is 1 of the reason for bankruptcies…. omg. I have calculate actually the car loan settlement here, , if I want to take out a loan right but hm Idk. Thank you btw for your article. I learn a lot here. Gonna do more research! 😀

  7. Hi Suraya,

    Loved this article (and all your articles tbh)! I love driving and being mobile (especially because some of the places I go to do not have public transport access) was an important factor. I was fortunate enough to be able to afford to pay about 40% of the down payment because my parents sold of a previous car. I ended up going for a Honda because a) I’ve had good experiences with them and b) their resale value is pretty good especially if you maintain it well. The loan was also an important factor to build up my credit score since I don’t have anything else to base my score on currently. I would still consider a car an asset (even though its a depreciating asset) and whether one needs it would depend on their type of work and travel requirements.

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