malaysia buy car by cash

Should you buy a car on cash or by a bank loan?

Maintaining a car is hard work. It has often been said that buying a car is easy but maintaining one is the challenge. Some people allocate certain amount of money for maintenance while others do not. But when it is time to change the car, some might have the savings to actually buy it off in cash because they might be buying a used car which is a lot cheaper than the value of your current car.
So, should you do this or should you apply for a bank loan instead?

The most common answer you will get is that if you buy a car using cash, the IRB (or income tax department) will be alerted and will check your finances on why you have so much cash in your bank and perhaps tax you more. The truth is, unless you are buying a Mercedes-Benz in cash, normal vehicles are off the radar.

The rule of thumb to buy a car in cash is if you are buying a used car which does not require you to pay a lot more than the amount you trade in your current car for. Besides that, you can do this if you have enough cash to spare. If you are buying a second hand Proton Saga which is about RM20,000, then it should be fine and if it is those really old which are dirt cheap, it would be even better.

Buying a used car should be done using cash because you need to allocate some extra funds for maintenance and insurance, not knowing what to expect. It could break down anytime which means that the first few months would be quite risky.

On the other hand, if you are buying a new car, even if you have the cash in your account, you should apply for a bank loan. You should however put in a higher downpayment so that the duration can be shorter or you can pay less per month. Furthermore, new cars these days come with free service and maintenance for the first few years which could ease your burden for a start at least. This should be the common practice if you do not want to incur too much interest as well.