How much to spend on a car?

The rule of thumb usually quoted in websites on how much to pay on a car is the 20/4/10 rule. That is 20% down-payment, 4 years loan, and monthly instalment of 10% of salary.

It is not applicable to Malaysia since we have high excise duties on our cars. Using this rule, we won’t be able to buy anything!

We are paying more on cars. For example, while an American or Australian would be paying 4 to 6 month wages on cars, it is about 10 to 15 months of our gross salaries on cars.

Say, the gross salary is $5,000/month or $60,000/year. (Yes, I can use the dollar symbol.  Don’t forget that our currency is in dollars and cents.)

The budget on a car for an American is $20,000 to $30,000 (4 to 6 months). For us, it is $50,000 to $75,000 (10 to 15 months).

The rule of thumb on a first car would then be appropriately revised to 20/5-6/15-20. That is 20% down-payment, 5 to 6 years loan, and instalment of 15% to20% of salary.

If the lower range 20/5/15 is used, the budget is $48,000. (Perodua Myvi ??)
Salary = $5,000.
15% of salary = $750.
20% down-payment = $9,600.
Instalment on 3.2% interest, 5 years and $38,400 = $742.

If the upper range 20/6/20 is used, the budget is $75,000. (Honda City ??)
Salary = $5,000.
20% of salary = $1,000.
20% down-payment = $15,000.
Instalment on 3.2% interest, 6 years and $60,000 = $993.

=========

Above is for a first car. I think for a 2nd car with trade-in value on the 1st car, the loan period should be down back to 4 years. If a longer loan period is needed to lower the instalment, then maybe a rethink is needed whether you really need to spend so much of your hard-earned income on a car.