Financial Tip #2: Use shorter period of installment for your car loan.
I made a mistake by having a longer installment period for my Honda City.
I took 7 years of installment instead of 5 years or less. That time, both my girlfriend & I were thinking of taking a longer term just in case that our income took a nose dive or should any thing happened.
By doing this, I practically wasted RM2640 of interest. I took RM60, 000 loan with 2.2% p.a. for 7 years. The interest for extra 2 years is RM60, 000 X 2.2% X 2 years = RM2640.
So, my advice is that you should use shorter period of loan term for your car. Try to make your loan term 5 years or less.
So, how much percentage of my income should be used to pay the car installment. From my point of view, it should be around 20% – 25% of your take home income which means after deducting tax, EPF and Sosco. Nothing more or less.
If your income cannot afford a brand new Perodua Viva or Perodua Myvi, get a second hand car. Car is never an asset. With the insurance, road tax, maintenance, parking fees and so on, it’s a BIG liability.
So, in order to become rich and wealthy, use a shorter period of installment for your car loan.
How much do you set aside for your car installment? Let’s share and compare.