I have mentioned before that one of the reasons Bruneians go into debt is because of financing a car. Living in Brunei, a car is probably an absolute necessity due to overpriced taxis and unreliable public transportation. But while a car is necessary, it also serves another purpose for many; one which even Brunei cannot escape: a show of status. Many Bruneians fall into this trap of buying cars beyond their means and are forced to lower their quality of living just to finance it.
Our social norms have conditioned many of us to see houses, cars, vacations and other venues of leisure as a show of wealth. If you have one or more of these things, society sees you as well-off. The sad truth is many, even those earning high income, fall for this illusion of wealth. This creates a pseudo sense of worth; one built on a shaky foundation and can very well crumble from life events such as loss of employment or birth of a child. Whilst some people personally don’t mind getting a cheaper vehicle, they are sometimes influenced by peer pressure from family and friends into taking the plunge.
A. Choosing a Car
Many people think highly of themselves. And as such they will presume that the car they drive is a symbol of the status they think they represent. This is frequently true for mid to high income earners but is especially damaging for the lower income earners. Having an inflated sense of worth is detrimental to wealth generation as it takes money out of your system which could be otherwise be used to generate wealth via investments.
So rather than buying the fastest sports car or that limited edition Lexus saloon car you can qualify for, why not look at these criteria to see if a cheaper option can satisfy your needs?
1. Condition – New Vs. Secondhand
Let’s face it, if the price of a car is the same regardless if it was new or old, we would always opt for the newer option. But as I’ve mentioned before, a car is never an investment because the moment the tyres hit the road, the price depreciates.
a. New
A new car has many advantages that goes along with its price tag such as:
- Warranty against defects. Like having insurance for your car right off the bat against serious problems, be sure to ask your dealership what is covered.
- Usually comes with free servicing for a few times; you only have to pay for the oil, filters and consumables.
- Safe to presume your car can last a while if maintained properly.
Disadvantage? It’ll cost more.
b. Secondhand
Second hand cars will definitely be cheaper but you have more responsibilities to check and assess it for various things such as:
- How old it is? It goes without saying that the older the car, the more problems it will likely have.
- Is everything working properly? Is the A/C not as cold? Or is there a rattling sound when it’s on the road?
- Has the previous owner maintained it properly such as servicing regularly?
- There are more paperwork to do such as vehicle inspection and change of owner procedures to name a few.
- Why is the owner getting rid of it for? It would be nice to know the reason they want to sell; could it be just because they want to get a new car or worse, it has problems already.
Although the price is cheaper, be sure to gauge its worth before you commit. Otherwise, you might find yourself paying much more than you anticipated.
2. Fuel Efficiency
You can have a powerful, roaring engine but if you want to save and go a little further, it’s better to check the fuel consumption. Even though petrol is cheap and subsidised in Brunei, everyone appreciates extra money in the pocket. For example a $30 full tank on a Ford Mondeo can only last about 6-7 days but a $26 full tank on a Mazda 6 can last about 10 days! Now consider paying this price for the next 10 years. Which do you think is the better deal?
3. Size
Come now, you don’t need a 2 seater coupe if you have a family of 6; you quite possibly want a shiny new toy. So on a needs basis, the size of your car should take into consideration whether you’ll be carpooling others and/or you are considering getting married and having children.
4. Maintenance and Parts
As your car ages you need to fix and replace parts. “Western” cars in particular are very expensive in this regard. There’s a saying I heard once that in Brunei, “5 out of 5 workshops can fix a Toyota, but you have to take a chance when it comes to something like a European car”. It’s pretty common to rely solely on a certain dealership’s service centre for specific car brands while many if not all workshops can service cars like Toyota, Kia or Hyundai.
5. Reviews
In this day and age, many consumers go by reviews. Check online reviews and ask family and friends who have a specific car you’d like. How does it drive? Is it good? All your questions should help you decide if it’s a good fit for you. Reviews and confirmed features or problems can also help you ask questions to weed out dodgy salesmen.
6. Test drive
The best way to get to know how a car feels on the road is to just drive! Dealerships will entertain requests for test drives so just book an appointment with them. Test cars from different makes to get an idea of how each of them handle. That is not to say test everything; that’s just wasting your time.
7. Price
Price will play a big role for your consideration because if you can’t afford it, there’s really no way forward. Cars in Brunei are considered Price Control Items. The Government of Brunei through the Department of Economic Planning and Development usually publish the latest approved prices for these controlled items on their website. Knowing the market price will also help you leverage on a fair deal for secondhand cars.
B. Financing a Car
Now that you’ve done your research and made your choice, it’s time to pull out your wallet. In Brunei, there are 2 common ways people use to finance their cars:
- Fully in cash
- Hire Purchase
1. Payment in Cash
Strolling into the local dealership in sunglasses and a suitcase full of cash to pay for a brand new sports car may be a Hollywood dream of yours. But minus the obviously pompous, showy display, paying for your car purchase in cash has its advantages:
i. Savings from interest.
Unlike taking up a loan, you settle everything upfront; meaning you are actually saving at least 4-5% on interest which you have to pay otherwise.
ii. No monthly repayment obligation.
Similarly, you do not have to set aside a chunk of your budget to pay off your car loan every month.
iii. Save time.
Not needing to wait for bank processes mean you can get your car faster.
Disadvantage:
i. Large sum up front.
Putting down 5 digits is not easy for anyone, it’s a commitment that you have to find a way to save up for. This option gives you less room financially for other things.
2. Hire Purchase
While cash is optimal, many people do not have the discipline or the means to drop a huge amount. The most common way to make a big purchase is to apply for a hire purchase a.k.a. car loan. This way, a creditor lends you the money which you pay back by monthly installments over a predetermined period. When shopping around, the most common questions you should ask yourself is who to loan from, how much is the interest and how long are you willing to loan for.
a. Creditors
Currently the organisations that I can find that provide car loans are:
b. Interest rate
The interest rate may be negotiable, depending of period of the loan, at around 4.25% to 4.75% per annum.
c. Loan period
Usually the creditors offer a repayment period of up to 7 years or 84 months.
Advantages:
i. Low upfront cost.
Biggest advantage is you do not have to drop a huge sum of money, only needing a deposit most times. This frees up your capital for other things.
ii. Affordable.
Paying by installment also takes the bite out of purchasing your car. E.g. $350 per month compared to $20,000 one shot.
Disadvantages:
i. Interest rate makes it expensive.
The interest on the loan could add up to a few thousand dollars in the long run. This can be minimised by holding the loan for a shorter period.
ii. Monthly payments.
You will have to manage your budget properly so as to not miss your monthly repayments. Missed payments usually have late payment interest attached to them.
iii. Takes longer.
The bank may need to do a credit check on you and also require multiple forms to be filled out, taking longer to complete the transaction.
iv. Fees.
Applying for hire purchase may be subject to additional fees.
Total Debt Service Ratio (TDSR)
In 2015, AMBD sent out a Regulatory Notice to implement TDSR which aims to control lending money to individuals. Over-lending led to people being unable to afford necessities and subsequently some were forced into bankruptcy, destroying their creditworthiness. This notice states that:
- any individual with a minimum net monthly income of BND 1,750 is not allowed to borrow more than 60% of their total income.
- those, earning less than BND 1,750 per month, applying for loans will be subject to the lender’s internal credit policy.
- the TDSR is cumulative across the individual’s loans, for example:
- If you have 20% of your income in loans already, you may only apply for a maximum of 40% your net income. This totals 60% of your net income.
- the individual should still have 40% of their net income for necessities.
Note:
If you are considering to take another loan to purchase a house or pay for education in the near future, you should consider putting more cash as down payment therefore lowering the TDSR.
After Buying
So now you have your brand new car and happily driving off into the sunset to the tune of Despacito. Happily ever after; the end, yes? Wrong.
You have to bear in mind that the purchase is only the beginning of your commitment to spending on your new baby. Things you have to consider and set funds aside for are:
1. Servicing
Your car needs regular oil change and maintenance usually every 10,000km.
2. Tyre change
Your tyres are not eternal; you will need to change them when they get worn. This is important as Brunei’s monsoon season is very hazardous if your car does not have proper grip. That being said, the bigger your tyres, the more expensive they will be to replace.
3. Road Tax and Car Insurance
You have to renew your car insurance yearly to renew your road tax. It is one of the very few taxes we have in Brunei and like other countries, the government isn’t impressed if you don’t pay up. You can also be fined by the Traffic Police if they conduct inspections and you have an expired road tax.
4. General care
You may also want to buy car shampoo, wax, Rain-X (I highly recommend this) to pamper your car and keep it looking great. Or you could bring it to a carwash and pay to get it done for you.
5. Repairs
It is an unfortunate reality that sometimes there are unexpected breakdown of car parts. Frequently encountered with older cars, some parts can cost up to 4 digits to replace.
Conclusion
All in all, if you are able to save up and buy a car in cash, it will definitely save you some money in the long run. Otherwise, a short term loan would be the route to take. A loan period of less years may be more expensive, but you will also save a little from making less payments on interest.
Whilst a car is a necessity for getting around in Brunei, we have to bear in mind the costs that comes with owning one. Getting trapped in the mentality that your car is a status symbol is a one way ticket to a debt-ridden reality. Financing a car, like spending on other things, should be for the right reasons. So if you really, really want that Lamborghini Huracán, make sure you earn it and thus making it all the more a satisfying victory:
“We need to steer clear of this poverty of ambition, where people want to drive fancy cars and wear nice clothes and live in nice apartments but don’t want to work hard to accomplish these things. Everyone should try to realize their full potential.”
– Barack Obama
