#PropertyHacks – Should You Buy A House At Auction? Here’s A Guide On Everything You Need To Know About It
- By CompareHero.my
- December 4, 2020
If you are considering purchasing an auctioned property, it is important for you to understand the basic auction terms and conditions. Here’s a complete step-by-step guide to buying a property at auction or lelong in Malaysia.
Buying a property at auction could be a good bargain if you’re looking for a cheap, below market value property. However, purchasing an auctioned property could also be a risky business if you are not well-informed about the procedure and the risks associated with it.
We’ll have to be frank – buying a house at auction is not the right choice for everyone. You must have the cash for the reserve price and the willingness to take on a high-interest loan to buy the property. That doesn’t include the fact that it can get pretty unnerving to be at an auction in the first place, given the bidding speed and the competition among potential buyers.
But scouting for an auctioned property could be fun for those who enjoy doing extensive research and who love the thrill (and have the patience and nerves) of hunting for hidden gems or good deals in the market!
All it takes is time, interest and dedication, and you could walk away with a really good deal. If you are interested to learn more about how to buy an auctioned property, read below!
Contents
What is an auctioned property?
When a homeowner fails to pay their mortgage for at least a few months, they could default on their loan, and end up in foreclosure. If the homeowner continues to delay the balance owed after a certain period, the bank has the right to repossess the house and auction it off, and also force the homeowner out for nonpayment.
What are the pros and cons of auctioned houses?
But before you go into a bidding war, hold your horses! The process of purchasing an auctioned house is not the same as purchasing a house from a private seller, and there are several pros and cons you should weigh before deciding on your next step.
Pros
1. Cheaper house prices
The first and most obvious reason to buy a house at auction is the cheaper price tag, usually way below the market rate. Not constricted to the size or the area, you could find a suitable house that is typically out of your price range. Paying less for the house also means you can be more flexible with your budget and allocate more money to other things like renovation and furnishing.
2. Lower commission fees for agent
According to the Malaysian Institute of Estate Agents (MIEA), the agents’ commission fees are set at a maximum of 3% of the property’s sale price for the sale and/or purchase of land or buildings within Malaysia – slightly hefty to say the least.
However, the joy of buying an auctioned property is that the commission fee, for either an agent or attorney whichever you choose, could be lower.
Cons
1. Not being able to check the property
One of the big disadvantages with an auctioned property is that, as a bidder, you won’t get a chance to view the interior of the property. Thus, bidders won’t know what the condition of the house is when they are making their bid, and this can turn into a pretty risky investment. Did you know that a man bought an auctioned condominium at Mont Kiara only to find a body that had been chopped into 11 pieces stuffed inside the unit’s fridge?
Do as much research as possible on the property; even if you don’t have access to the interior of the property there are other factors to look at such as the exterior parts of the house. For example, the picture of the auctioned property may look acceptable, but visit the location to get a better view of it – the last thing you want is for it to be located at a busy T-junction or next to a sewage plant.
Bonus: equip yourself with extensive knowledge of the general housing market. Find out the legal elements, inspection jargons, the type of lease the house is under, and find out more about the bank who owns the property.
2. More complications may arise out of it
The complications are higher than usual for an auctioned property. Common complications include understanding that there’s a caveat placed on the house by a third-party.
Derived from the Latin word which means “let him or her beware,” a caveat is a temporary measure to protect the rights of the land.
A private caveat aims to protect an individual’s rights under the sale and purchase agreement temporarily, in anticipation of legal proceedings lodged in the private caveat. A private caveat could cause a hindrance as it will prevent any dealings: from registering to change of ownership, while the private caveat is in force.
Read further below for our full explanation on caveat.
Related: How Much Do You Need to Earn to Afford A House in KL?
Before we go into the full steps, here’s a to-do checklist before bidding on an auctioned property
1. Caveat
Auctioned properties have a risk of having a private caveat. If an auctioned property does have a private caveat, even if you win the bid and pay the full amount, you will still have to challenge the third party (who submitted the caveat) for the property. This is because a private caveat may only be removed:
- by the caveator (a person who files or enters a caveat)
- by the Registrar
- by an order of the court
Application for the removal by court order could be done by any person aggrieved by the existence of the private caveat. In this case, the person who won the bid on the auctioned house which had a private caveat.
An auctioned property with a private caveat will also mean you will not be able to get a home loan. This is because no bank will approve a loan if there is a private caveat on the property. Therefore, unless you can afford to pay in cash, it is advisable to not proceed to bid for a caveated auction property.
But do take note that, even if you win the bid and have the money to pay for it in cash, you will also have to go to court to challenge the third-party to remove the caveat, which can be a long procedure and incur additional costs as a result of the legal fees charged.
Before proceeding to bid for an auctioned property, it is advisable to get the proclamation of sale (POS), and also to do a title search of the property; you can request these things from the auction agent. This will give a bidder useful information such as the address, and if there are any restrictions such as a caveat on the property. Having the address means you can check out the surrounding location of the house, even if you can’t see the interior at least you will know what the location is like.
2. Developer
Do an extensive background check on the developer of the property – if the property’s title is still under the developer’s name, a bidder should first check if the developer is still an existing company.
Remember, the terms and conditions in an auction contract always protects the bank, not you. If the developer is bankrupt and the company has been liquidated, then transferring the title to you after you have won the bid will be a hassle.
3. Type of tenure: is it leasehold or freehold?
Finally, do some homework to find out the type of tenure for the auctioned property, whether it is leasehold or freehold. If it is leasehold, you will need to check with a bank to make sure you can get a loan. If the number of years remaining on the lease for the leasehold property is less than 50 years, some banks might not give you a loan. Or if a bank does approve a loan, instead of securing a 30-year loan, you might get a 25-year loan.
For example, a bank auctions Ahmad’s house for RM1.4mil. However, his default loan amount to the bank was only RM300,000. As such, after his house has been auctioned, Ahmad will get RM1.1mil, as the bank will only take the outstanding amount owed, which was RM300,000.
Buying a property, whether it is brand new, sub-sale or even an auctioned property will involve risks. Read our other articles on purchasing property so you can make a better-informed decision before taking that big financial leap.
How to buy a lelong or auctioned house? – Here are the 10 steps
- Identify the property – you can find properties that will be auctioned from platforms such as lelongtips and auctionlist. Otherwise, you can also have a look at the classifieds section of newspapers.
- Search for the property – get the proclamation of sale (POS), and also to do a title search of the property. This will provide you with the location and description of the property for auction.
- Inspect the property – don’t rely on the description only. Go to the location so you can see the surrounding area.
- Call the auctioneer or sales agent to obtain other information on the property not available in the description.
- Prepare a bank draft equivalent to 10% of the reserve price.
- Register on the auction day and get a copy of the terms and conditions of sale from the auctioneer. A bidder’s card with a number will also be issued to you for identification during the auction process.
- Read the conditions of sale, and seek clarification from the auctioneer on any queries before the auction starts.
- Bidding on the property will start when the auctioneer announces the commencement of the auction. Bidders raise their hands to bid for the property.
- The successful bidder will be the bidder with the highest offer during the bidding process. When the auctioneer’s hammer falls, the property is considered sold.
- Sign the sales contract, and the successful bidder will be advised to collect the stamped contract at a later time. Contact your bank to arrange for financing.
Related: How To Buy Your First Home In Malaysia
Buying a property is a major financial investment. Follow the tips and tricks in our #PropertyHacks series to make the most out of your investment. Stay tuned for more content!
This article was first published in November 2017 and has been updated for freshness, accuracy and comprehensiveness.
Disclaimer: Neither CompareHero.my nor the content on it is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. The content on CompareHero.my is for general information purposes only and is not intended to be personalised investment advice or a solicitation for the purchase or sale of securities.
Compargo Malaysia Sdn. Bhd. and/or its affiliates cannot and do not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. CompareHero.my may receive compensation from the brands or services mentioned on this website.
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#DigitalCareers: How To File Your Income Tax As A Freelancer
- By CompareHero.my
- December 3, 2020
Working as a full-time freelancer means you don’t have an employer to assist you with tax-related matters. This can complicate the tax filling procedure come tax season. So if you are new to freelancing and haven’t registered a tax file, here’s a quick guide on how you can do it.
If you think freelancing is a way to circumvent taxes, then you are greatly mistaken.
As the old adage goes, there’s two things in life that are certain: death and taxes. You could even argue that paying taxes is part of our civil responsibility and obligation as a citizen of the country.
Unfortunately, pocket money or extra income earned from side-gigs or side-businesses aren’t exempted from being taxed, and there’s no real way to escape paying taxes irrespective of your type of employment, i.e. freelancing and being self-employed.
Having an employer, however, does come with some advantages. For example, your company will carry out the payments for you, making the entire process much easier and smoother – but as a freelancer, that’s not really the case and you’ll need to manage the entire process by yourself.
If you are a freelancer, it’s not uncommon to feel unsure of how to manage and deal with all of your tax-related documents. If you need more help on how to file your income tax as a freelancer, read on.
Contents
- How do you define freelance work?
- There’s no escaping taxes – so first establish if you are taxable!
- How is filing for income tax as a freelancer different to a regular employee?
- Are all earnings considered taxable and what tax form should freelancers use?
- Here are quick tips to make filing for income tax (as a freelancer) easier:
- Don’t skip your tax returns because it comes with a heavy price!
How do you define freelance work?
If your payment is directly dependent upon the profits earned from the goods and services produced then you are categorised as a self-employed worker, according to The World Bank. And guess what? The description pretty much applies to freelancers, too.
Don’t take filling your income tax lightly as you could be fined or imprisoned by Lembaga Hasil Dalam Negeri (LHDN). For example, failure to (without reasonable excuse) to furnish an income tax return form could result in a fine of RM200 to RM20,000 or imprisonment for a term not exceeding six months.
Related: The Complete Personal Income Tax Relief For Malaysia
There’s no escaping taxes – so first establish if you are taxable!
To be taxable, you have to fulfill certain requirements as a resident in Malaysia.
- An individual who earns an annual income of RM34,000 (after Employees Provident Fund (EPF) deductions).
- An individual who earns income from a business (through gains or business profits).
If you fulfill the requirements, then you are definitely taxable. However, if you didn’t already have a tax file registered to LHDN, and your income is below the chargeable amount (RM34,000), you don’t need to register a tax file.
However, you will still have to submit your return form if you had already reported a tax file from your previous employment – regardless if your annual or monthly income falls below the chargeable level.
How is filing for income tax as a freelancer different to a regular employee?
Employees will usually receive a document called an EA form detailing their total salary earnings as well as their total EPF and SOCSO contributions for the year. This form is crucial when filling in your return form because it provides you the nitty gritty details you need to complete your tax return.
Conversely, since full-time freelancers don’t make a fixed income per se, they’ll have to figure out their earnings by themselves by going through their own invoices and expenses.
Another big difference between freelancers and full-time employees is that the latter would usually go through the Monthly Tax Deduction (MTD) programme, where employers would make monthly tax deductions for their workers. Freelancers, on the other hand, will typically have to pay a lump sum figure to LHDN come tax season, and this can be rather hefty if your earnings are large.
Are all earnings considered taxable and what tax form should freelancers use?
If you haven’t registered your services or freelance work as an official business, you should use the Form BE, specifically catered for individuals who don’t own a business. Part-time freelancers may find themselves in this situation the most because their side-gigs may or may not be long-term projects. But if you have a registered company, you’ll need to file your taxes with Form B.
The reality is most of your earnings or royalties from freelancing will be taxable; but there are freelancing-related tax reliefs and exemptions that you should take advantage of to pay less tax. We list them below. By the way, this is not the exhaustive list of exemptions; you may be qualified for other exemptions so be sure to check that out as well.
Note: Income earned from foreign companies, in other words, businesses that are not based or registered in Malaysia, are exempted from tax, as of YA 2004.
Royalties are not taxable or exempted if they do not exceed the following:
| No. | Types of royalty | Exemption (RM) |
| 1 | Publication of artistic works/recording discs/tapes | 10,000 |
| 2 | Translation of books/literary works | 12,000 |
| 3 | Publication of literary works/original paintings/musical compositions | 20,000 |
For a full list of exemptions, click here.
Here are quick tips to make filing for income tax (as a freelancer) easier:
1. Take advantage of all the eligible tax reliefs
This is not a freelancer-exclusive tip, but if you are looking to reduce your income tax payment, the best option is to take advantage of all the different tax relief efforts that you are eligible for.
For example, you could take advantage of a slew of recently announced tax reliefs in Budget 2021. The most notable tax reduction is the reduction of personal income tax by one percentage point to 13% for those earning RM50,001 to RM70,000 annually. According to the Finance Ministry, the proposal will benefit 1.4 million taxpayers in the country. This tax cut revision is the first since the last revision in 2018, which saw a reduction from 16% to 14% for the same income bracket.
Other noteworthy tax reliefs include the Private Retirement Scheme (RM3,000 relief which has been extended to 2025), tax reliefs for immunisation programmes and insurance products and a lifestyle tax relief specifically for sports-related expenditure, which has been raised to RM3000. Check our article for a full list of Budget 2021 related tax reliefs. By the way, it also doesn’t hurt to contribute to EPF as this will qualify you for a RM6,000 relief, it also helps you save up for retirement.
2. Hire a tax consultant
This may not be the most ideal tip especially if you are a small-time freelancer just looking to make an extra buck. This solution also wouldn’t make much sense to you if you don’t make a lot on the side anyway.
But if your freelance income is significant – which could potentially make filing tax returns complicated – then it wouldn’t be such a bad idea to consider getting a professional to help you manage your tax returns. They could also help you claim business expenses and get as many deductions legally possible. Who doesn’t want to pay less tax, right?
3. Register your business
Having a proper, registered business comes with obvious benefits – higher credibility and visibility with clients, better chances of securing a loan as a freelancer, better tax rates and eligible to claim for business expenses and deductions.
4. Contact LHDN directly
If you are still unsure or have doubts over filing your income tax, our next advice is to seek direct help from LHDN who can provide more clarity over your tax concerns with regard to your line of business.
There’s undoubtedly a lot of uncertainty over the standard operating procedure for tax returns for full-time freelancers in Malaysia. On top of that, every freelancer will have very specific issues or concerns, so it’s safest to go directly to the main source.
Don’t skip your tax returns because it comes with a heavy price!
Although filing for a tax return, especially as a freelancer, sounds complicated, the process would flow smoother once you start getting a hang of it and doing it on a regular basis.
Never try to skip a tax return because you could, by law, be punished and fined. Do as much research as you can, and if things are just too complicated, get help from LHDN.
We hope you found this article helpful!
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Here Are 7 Smart Ways To Invest And Grow RM10,000
- By CompareHero.my
- December 2, 2020
If you are looking for tips on how to grow the first RM10,000 or more in your savings, here are the seven smart ways you can invest and grow it. Read this article to find out.
What would you do if you had RM10,000 in your savings right now? Some may splurge it on themselves or use it for their necessities, while others may stash it away for their own investments.
Knowing how to manage that money is crucial, especially in this day and age where inflation, almost always, cuts through our money, making it harder for us to retain the value of our savings. In this article, we will explore the different ways you can invest and grow RM10,000.
Following the announcement that contributors who are financially impacted by the pandemic could withdraw up to RM10,000 of savings from their Employees Provident Fund (EPF) Account 1, we were intrigued by what a person could actually invest in with RM10,000.
But for those who have RM10,000 or more in savings and are wondering how to best utilise and grow it further, here are eight ways you can grow your wealth.
Contents
- 1. Clear your debt – it’s the first important step!
- 2. Stay protected by insuring yourself!
- 3. Open a private retirement fund
- 4. Start saving for your children’s college fund
- 5. Increase your mortgage payments
- 6. Savings accounts and fixed deposit accounts are good for the risk-free hunters
- 7. Investment is king – explore different instruments
- Here are tips on investing to help you take your first steps.
- Final important tips before you start investing
But first – setting the right mentality
It’s important to remember that regardless of whether you are using a savings account or a fixed deposit account or a one-time investment, money requires some time to grow and investors may tend to have usually unrealistic expectations for returns in a short period.
Similarly, it’s important to practice diversifying your portfolio. A lack of diversity in your investments is similar to gambling. You bet on one choice and expect to get the greatest return. The diversification model is an important way to secure your wealth with balanced risk management.
All in all, there are no shortcuts to growing your wealth other than these financial steps:
1. Clear your debt – it’s the first important step!
Your total assets and savings will only truly count if you have zero debt.
For example, if you have a total savings of RM10,000 and total debt of RM4,000, your savings amount is technically what you have left after paying your debt and interest rates.
Hence, prioritise clearing your debts first. This way, your savings or investment may produce a healthy net return without losing value by your debts’ interest rates.
Related: Learn how to calculate flat rate interest and reduce balance rate.
If your total debt is more than RM10,000, you don’t have to use all of that money to clear your debts. Instead, use 70%-80% to clear as much debt as possible and leverage on debt repayment tools in the market such as a debt consolidation personal loan or a 0% interest balance transfer (for credit card debt). Here is a detailed article on how to use debt repayment tools.
2. Stay protected by insuring yourself!
You never know what will happen next in life, so it’s best to be prepared.
Retrenchment, disability, health issues, critical illness, and accidents can cripple your finances if you do not insure yourself properly.
With a monthly payment of RM250, you have comprehensive insurance including medical coverage of RM100,000 a year and coverage of RM100,000 in the event of death or total permanent disability.
Here is everything you need to know about life and medical insurance:
- Is There Disability Insurance in Malaysia?
- What Is The Difference Between Life Insurance and Medical Insurance?
- What Does Life Insurance Cover?
- Is life insurance a form of investment?
- Life Insurance Companies in Malaysia
- Why Should You Get Life Insurance?
- What Do You Know About Medical Cards
3. Open a private retirement fund
At some point, all of us will have to retire, the only question is when and at what age. When you do reach that point, you want to ensure that you have enough finances to keep you safe and afloat since you will no longer be employed.
So ask yourself whether you have enough savings for retirement?
Besides depending on the EPF contribution, another great way to save up for your retirement fund is the Private Retirement Scheme (PRS).
Launched in July 2012 by the Private Pension Administrator Malaysia (PPA), the central administrator of PRS, the goal of the retirement scheme is to offer Malaysian employees and the self-employed an additional avenue to save for their retirement. It also offers an opportunity for employers to make additional voluntary contributions towards the retirement savings of their employees.
4. Start saving for your children’s college fund
One of the best ways you can invest your money is through your children and their education.
Of course, other expenditures or expenses related to your child will still be considered investments but this is one of the biggest of them all.
With the cost of college continuing to rise, it would be a huge relief for your child if you could help reduce the burden of expenses off their shoulders as well as decrease their reliance on student loans.
5. Increase your mortgage payments
Similar to how it’s important to clear off any existing debt that you may have, i.e. loan payment, credit card, car loans and more, settling your mortgage faster would take you a step closer to financial freedom. Finishing it off faster also means you will have to deal with less interest.
A little goes a long way too: just by increasing your monthly payment to RM200, you could help save thousands of Ringgit over the life of the loan, and you’ll pay off your mortgage way earlier.
6. Savings accounts and fixed deposit accounts are good for the risk-free hunters
To make sure your money continues to grow despite inflation, keeping between 30% to 40% of your first RM10,000 in a savings or fixed deposit account may be a good idea.
Besides, most of us will need to have at least one savings account for liquidity and daily transactions such as bill payments, grocery shopping and more.
Compare the best savings accounts in Malaysia here; some of the best rates range between 2.5% and 2.8%.
With a fixed deposit account, you are not allowed to withdraw money until the term of the deposit is over. The investment term and the interest rate are fixed so you can accurately predict the returns you will get from your fixed deposit. The term for fixed deposits starts from one month to 24 months with a minimum amount of RM1,000.
Related: Find out the best-fixed deposit account in Malaysia here.
7. Investment is king – explore different instruments
Once you have covered the steps above, here comes the most interesting part to build your wealth with your RM10,000 (or what is left of it).
We’ll be frank – it’s quite impossible to get rich just by getting a daily paycheck. Unfortunately, many of us sign up for part-time jobs or start our own business just to make ends meet. But there’s another way you can grow your money and it is one of the easiest if done right: investing.
However, not all investments are made equal. Some have higher to medium risks like bitcoin and robo-advisors, and others are more conservative like bonds or fixed deposits. The key is to diversify and know which works for you the best.
“How many millionaires do you know have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen
As painful as it may sound, many of us are trapped in the same income bracket because we stay away from investing, which is an important financial element for growing your wealth.
Here are tips on investing to help you take your first steps.
a) Start with the safe options
If you can fully utilise your RM10,000 without having to worry about clearing debts and sustaining your daily finances, you can start with allocating 20% to 30% of your savings on low-risk investments such as Fixed Deposits, Real Estate Investment Trust (REITs), Exchange Traded Funds (ETFs), and Exchange Traded Bonds and Sukuk (ETBS).
- If you put your money into a fixed deposit, you can find accounts paying around 3 – 4% interest rates. It sounds crazy because of how easy it is, but it is! Make your money work harder for you by signing up for an FD now. By the way, if you didn’t already know, fixed deposits in Malaysia are covered for up to RM 250,000, according to Perbadanan Insurans Deposit Malaysia, making it a low-risk investment option with steady returns. But with that said, if you want to grow your wealth exponentially, it may not work out as fast because fixed deposits still operate below inflation.
- REIT is a fund or a trust that owns and manages income-producing commercial real estate (shopping complexes, hospitals, plantations, industrial properties, hotels and office blocks).
- Generally, there are three types of ETFs: equity ETFs, fixed income ETFs, and commodity ETFs. These ETFs consist of baskets of stocks, bonds or commodities based on an index which instantly offers broad diversification and averts the risk involved in owning stock of a single company.
- ETBS are fixed income securities, also known as bonds or Sukuk, listed and traded on the stock market. ETBS are issued either by companies or governments (the issuer) to raise funds for their needs. Sukuk refers to issues that comply with Shari’ah principles.
These investment products are listed on Bursa Malaysia and they are a perfect fit for beginner investors who want to have peace of mind. Before investing in these products or the stock market, you will need to complete these five simple steps first.
Other than the investments above, you can consider investing in listed companies that offer dividends for fixed income. Several stocks reward its shareholders’ dividends every quarter and it provides a stable return on top of the share price growth throughout the investment period. To know which counter (stock) to invest in, you should learn how to calculate dividend yield first. In simple words, a dividend yield is the ratio of dividend payout to the current stock price.
For example, company X offers 12 sen of dividend for 2020 and its stock price was RM1.20 when you bought its shares. Hence, the dividend yield of the company is 10% for that year and you would have earned 10% in the forms of dividend for this particular investment.
Related: Check out these insights shared by Dividend Magic on investing for dividends in Malaysia!
b) Be a stock investment guru
After securing low-risk and fixed-income investment, you can allocate some of your money on a stock investment that bears the higher risk and return, allocate 20% to 25% out of your RM10,000. Investing in a stock means you are investing in a company or business that you believe in.
Admittedly, the economic outlook for the country doesn’t look great because of the pandemic, but that doesn’t mean you should shy away from the stock market. The key is instead to identify stocks or securities that are performing well and to reap its benefits a few years down the road. But how should you choose?
There are over 500 listed stocks on Bursa Malaysia across different industries. You should always invest in a business or company that you believe in after conducting proper research from Bursa Market Place, general news, annual reports and any other sources that can provide you legitimate information about the company. Here is a full guideline on the steps to evaluate and select stocks for your investment portfolio.
c) Unit trust for the convenience seekers
In the past, unit trust was not favoured due to its hefty costs in the form of commissions and sales charges. However, many investors are opting to invest in unit trust investment on digital platforms such as Fundsupermart for its user-friendliness and cheaper rates. Through Fundsupermart, you need to fork out a minimum RM1,000 to start investing in unit trust followed by a subsequent minimum amount of RM100 every month.
Some fees may differ for funds and providers, with the common ones being sales charge and management fees. The sales charge is paid upfront and it is the commission for distributing the product, but it would differ according to the different channels of distribution (such as banks, agents, and online platforms) for the same unit trust.
The management fee is charged by the fund manager for managing investors’ monies in the unit trusts, which usually ranges from 0.5% to 2.5% (depending on the complexity of the fund). Click here to learn more about investing in unit trust online!
d) Get a taste of robo-advisors!
Most robo-advisors would recommend portfolios using passive indexing strategies optimised with some variant of the modern portfolio theory (MPT), a mathematical framework of assembling a portfolio. This method allows risk-averse investors to maximise returns based on a given level of market risk.
What’s cool about robo-advisors is you get to access your investment portfolio at just the tip of your fingers.
Start by downloading the mobile application either through Google Play or the Apple Store.
Upon entering the app, the user will be asked a series of questions about their resources and financial goals, then the robo advisor will decide how to invest the client’s money.
To better understand you as an investor, these questions will usually touch on subjects like investment timeline, risk tolerance, and savings. Then the answers are run through an algorithm-based AI to determine the asset allocation and build a portfolio of diversified investments that are most aligned with the investor’s goals. Different platforms would have different methodologies but most are based on MPT.
The software can also automatically rebalance a portfolio to ensure that it remains close to the target allocation, regardless of asset performance or if the investor makes tweaks to his or her portfolio.
Regular contributions in the form of small weekly or monthly deposits are encouraged to make sure the contributions can maintain their target allocation and keep the investor on track to achieve their goals. The portfolio would also be monitored to ensure that the optimal asset class weightings are maintained.
For more information on robo-advisors, click here.
e) Gold as an investment – yay or nay?
In these turbulent economic times, investors may steer away from stocks which tend to be more volatile during a recession and opt for recession-proof ways aka “safe-haven assets” to store their cash, like Bitcoin and gold.
The good thing about gold is that it has held onto its value for a long time. Unlike the stocks and bonds that may be more volatile because they depend on the economy, gold is considered a low-risk asset because its value is tied to itself and nothing else – in a sense, there’s always returns. Gold is also a universally desired asset. If you’re not so sure on whether to invest in gold, we suggest you read our article on gold that we did recently
Final important tips before you start investing
- Do not invest all of your money in just one investment.
- Build a portfolio consisting of low-, middle- and high-risk investments. Example: REITs, overseas fund unit trust, and small-cap stocks, depending on your preference.
- Always do your research before investing your money.
- Only invest in a business, stock or industry you are confident with.
There you have it. We hope you found this article insightful!
Disclaimer: Neither CompareHero.my nor the content on it is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. The content on CompareHero.my is for general information purposes only and is not intended to be personalised investment advice or a solicitation for the purchase or sale of securities.
Compargo Malaysia Sdn. Bhd. and/or its affiliates cannot and do not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. CompareHero.my may receive compensation from the brands or services mentioned on this website.
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#BreakingItDown – How To Buy A Car With Cash: Here’s Everything You Need To Know
- By CompareHero.my
- December 1, 2020
If you’re planning to buy a car with cash, there are some things that you should know and steps you need to follow. Read this article to find out!
For many of us, financing a car is the most obvious and common solution when it comes to buying a car. With the average cost of a used hatchback car in Malaysia ranging from at least RM23,000, very few people fancy the idea or could afford to pay their car in cash.
Despite the rarity, buying a car with an up-front one lump sum payment comes with its own set of perks, for example, bypassing a loan – and its interest – which is a win for you in the long-term.
But interest aside, and the fact that it’s sort of an admirable goal that tests your own willpower and financial strength, is buying your car with cash actually the smarter and wiser choice?
Before diving any deeper, let’s first address the elephant in the room – a car is one of the most expensive investments – with a low ROI – that you’ll ever make. From what we found, a car with an average market value of RM50,000 and power of 1,400cc comes with an additional cost of RM5,000 – give and take – for road tax, insurance, maintenance and service and petrol.
That doesn’t include other non-expenditure factors like how much you drive, where you live, and of course, how much you borrow from the bank to buy it. The bottom line is we spend a lot on cars, and most households have at least two or more cars – imagine the amount of cash we can all save up if we took public transportation.
But cars are also a necessity – they help us get around conveniently, which is why people don’t mind investing in it. The next question is what’s the best way to finance it?
In this article, we will explore whether buying a car with cash is worth it as we believe that there are plenty of reasons to pay cash for a car and there’s a number of ways to do it.
Four reasons to buy a car with cash:
Contents
- 1. You spend less overall
- 2. You avoid paying interest
- 3. You build financial resilience
- 4. You learn to prioritize other financial goals
- Step 1: Be realistic about what you can afford
- Step 2: Get real about whether it’s a want versus a need
- Step 3: Set up a plan and budget, and stick to it!
- Step 4: The tough part – save up the actual money!
- Step 5: Find the right car
- Step 6: Know where to look for deals
- Step 7: Get your car inspected by an independent mechanic before buying
- Buying a car with cash is possible, but it may or may not be for everyone, depending on your level of discipline and commitment
1. You spend less overall
Similar to how excruciating it is to put down money for a house downpayment, paying your car in cash is tough, but it keeps you disciplined and focused on securing your investment.
We’ll be frank, it hurts to have to take out so much money from your hard-earned savings for a piece of metal that would eventually wear out and lose its value anyway.
Related: #BreakingItDown – 8 Things That Affect Your Car’s Resale Value
Paying via a loan contract is easier because it doesn’t take that much emotional and mental dedication – to a degree. It’s still as terrifying, but not as much as paying with cold hard cash.
Although financing or loans helps us feel much more secure because the money isn’t directly and immediately being withdrawn out of your bank account, it will result in a higher final cost because of the interest rates over time.
At the same time, financing may tempt you into buying an expensive car, though you had initially set your plans at a certain budget.
2. You avoid paying interest
This is pretty self-explanatory but by not financing your purchase, you automatically avoid paying any interest. When you pay your loan with interest, it affects the total price of your car, making it more expensive.
To illustrate this, let’s use this simple example:
By the way, when it comes to car loans, the stated interest rate is not the same as the real interest rate (called the Effective Interest Rate, or EIR). That’s because car loans always use what’s called a flat interest rate. With a flat interest rate, the amount of interest you pay is fixed upon the principal.
For example, say the loan amount is RM84,000, and the interest rate you pay is 3.4% per annum for seven years. Using the “rest rate method” of calculation, the interest you pay is based on the principal (the original loan amount) of RM84,000 every month.
So the interest payable works out like this:
Your interest per year would be: 3.4% of RM84,000 = RM2,856.00
Total interest paid over 7 years: RM2856.00 x 7 = RM19,992.00
Now, added to your initial loan of RM84,000, the total amount you need to repay is (RM84,000 + RM19,992.00) = RM103,992.00
Divided over a period of 84 months, that comes down to RM103,992.00/84 = RM1,238 per month.
In this case, the effective interest rate (EIR) for this car loan is 6.27%. In the simplest words, EIR is the true rate of interest earned, factoring in compounding effect.
But there are two things we wanted to highlight here: one, with a loan you’ll need to pay an additional RM19,992.00 over the course of seven years! Secondly, this brings your total repayment amount to RM103,992 which is way more than the initial RM84,000 you took up.
Related: Why Car Loan Interest Charges Are Actually Pricier Than What It Seems?
Another thing worth mentioning is that without a car loan, you avoid monthly repayments as well.
3. You build financial resilience
Though most investments will require some form of discipline, paying your car with cash is a great way to build up more financial skin or financial resilience.
The amount of effort it takes to save up to buy a car with cash will be akin to training wheels on a bike – a good starting ground for you before you take up much bigger financial commitments like a mortgage, for example.
Once you develop discipline in this one area of your life, it will automatically spill into other areas of your life and serve you well in the long term.
4. You learn to prioritize other financial goals
This may sound a little biased, but if you pay your car in cash, you could be forced to, or willingly, dedicate more time and commitment into other financial priorities that could be relatively more important (i.e. mortgage, your business, credit cards, personal etc.).
By the way, if you are on the lookout for credit cards or personal loans, it doesn’t hurt to check out our website as we offer the convenience of being able to compare different offerings at the tip of your fingers.
Learning to prioritise also opens up the opportunity to really make an assessment of what is most important to you: a car versus a mortgage versus credit cards and more, as most people have multiple – if not at least one other financial commitment -besides their mode of transportation. It’s not about picking favourites but really about prioritising what matters to you the most.
For example, maybe having a larger house carries more weight to you than having a nice car then you could make do with a used car, which is often the case when buying a car with cash. It could also get you thinking and comparing other financial scenarios such as funding for retirement, getting out of credit card debt or paying for your children’s college.
Now that we’ve sort of built a case as to why paying with cash is great, let’s look into how you could actually do it.
How to pay a car with cash – here are the seven steps!
Step 1: Be realistic about what you can afford
Don’t rely on a car dealer to tell you what you can or can’t afford, because most likely almost all options would be considered expensive if you do. Dealers are more likely to persuade you into buying a car with a loan.
Only you can decide how much money is or isn’t enough. You could maybe start by assessing your total financial situation, and factor in your future financial goals as well. Each person will have different priorities in life, and make sure to identify yours.
Step 2: Get real about whether it’s a want versus a need
Just because you can afford something, doesn’t mean you should buy it.
Similar to other big decisions in life, don’t make the decision to buy a car, regardless through what medium, in a vacuum because failing to see the bigger picture or connect those dots, with other parts of your life will come with ill consequences.
Often, decisions that are made in a vacuum are made on limited perspective and information, as it fails to invite others, like your family, friends or trusted ones, to contest whatever belief you have out of fear of being judged. To a degree, your poor decision making could also be because you don’t want to be blindsided by the results of your own poor decisions.
Though always making the right decision is a tall order – from anyone – you could let the pressure off yourself by seeking a third-party perspective from outside your own bubble.
These neutral or external opinions could help give you a different perspective or look at how the payment will impact your life.
Step 3: Set up a plan and budget, and stick to it!
The biggest misstep that we often make is not preparing a budget before spending.
Setting a budget helps you do two things beyond keeping you disciplined: it creates a tangible Ringgit amount for you to work towards and helps you figure out how much you need to save each month.
With a budget, you will have a better idea of how much money you need to save or make to buy your next car with cash. By knowing what budget you are working with, you can slowly start saving and building towards that number.
But to create a comprehensive budget, you will also need to know, roughly, what type of car you are aiming for if you want to buy it with cash. Shortlist types of cars, the price range, as well as the duration it will take for you to accumulate the money needed.
Enlist family and friends to keep you on track if you end up not following your budget and plans.
Step 4: The tough part – save up the actual money!
The real hard work starts now.
This may seem like an obvious step, but it’s really one of the most important stages of purchasing a car with cash.
In order to successfully pull off your objective, you must be disciplined in setting aside money each week, bi-weekly, or monthly.
Think of it similar to investing or savings – you commit to putting away a certain amount of cash each month, either into your unit trust or mutual fund or savings account.
Be consistent and allocate a certain amount of money to put away every month. If you have more to spare that month, you could put away much more money, but if you don’t have a lot of extra cash to play with, start small with at least RM100 per month – of course, you will want to accelerate this, especially if you plan to purchase the car at a certain stage of your life.
Saving money is a process that will give you a clearer picture of where your money is heading and how you could cut back on certain expenses if you needed to save more.
You could even consider investing in short-term investments like bonds in order to help grow your money.
Step 5: Find the right car
Let’s be real – if you have set your heart and mind to buying a car with cash, you’re very likely not going to be able to afford a brand new spanking sedan.
Paying a car with cash is already a huge financial commitment, so you are likely only able to focus on purchasing used cars, but with varying specs.
Our tip is to look for cars that have ‘uglied out’ or that have at least 160,000 kilometres on it because these cars will be cheaper yet still functional.
Aesthetics or cosmetics features, unfortunately, should not be your priority if you choose to buy a car with cash. Instead, dents and peeling paint will be common when buying a used car. The rougher or scuffed up its exterior looks, the higher the chances you get to haggle the seller on the price. However, contrary to popular belief, the exterior flaws do impact the car’s overall performance – though not as significantly. It may not completely affect what’s under the hood, we’ll have to say.
For example, bad or bald tires are bad news for you because it could potentially be dangerous for you to be on the road with them. If you have several hundred Ringgit to spare, do consider shelling out more to replace them, for your own safety’s sake.
If you’re wondering why 160,000 kilometres, it’s a rule inspired by car manufacturers Hyundai, Kia and Mitsubishi. We read that a car that has travelled 160,000 kilometres is not too much or near the end of its useful life because, as we read, it’s possible for vehicles made within the last 10 to 15 years to ride 200,000 miles or more if they’re properly maintained. However, we recommend you sticking to cars that have a record of routine maintenance, especially oil changes.
Step 6: Know where to look for deals
We truly hold on to the belief that you should always compare, compare and compare!
With so many options to choose from in the market, it doesn’t make sense to make your decision after just a few viewings; research every nook and cranny of the used car market in Malaysia’s automotive world before you say yes to the car of your choice. Websites like Carsome, Carlist and Mudah might be helpful as a starting point.
Some of these websites will let you comb through hundreds if not thousands (and maybe even more!) of listings available in their databases. To make your experience much better, some of them like Carsome, for example, allow you to filter the inventory by car price, monthly payment, make, body type, year, mileage, transmission and colour. You can also get a 360’-view of the car, alongside a full list of car details like engine capacity and variant.
Related: #BreakingItDown – Don’t Make These 9 Mistakes When Buying A Car
Step 7: Get your car inspected by an independent mechanic before buying
Last but certainly not least, and perhaps the most important, is to check the health of the car of your choice before you proceed with the purchase.
We’ve pretty much established in our previous article that depreciation is an unavoidable reality that all cars will experience. All cars go through this, and it’s particularly obvious with cheap and used, ‘as is’ cars. Therefore, never rely on or take the word of the salesperson about the car, whether it’s a commissioned employee, an independent seller or even your family friend (really!). Instead, get a certified, trusted and independent mechanic to kick the tires on your potential purchase.
Buying a car with cash is possible, but it may or may not be for everyone, depending on your level of discipline and commitment
As we’ve outlined in this super long article, buying a car with cash comes with definite pros, is possible and is worth the effort.
However, does it mean that you should buy a car with cash? It depends on what you are looking for and prioritising in life. Don’t buy a car with cash if you want to buy a brand new car. Similarly, you won’t be in a good position to buy a car with cash if you have no savings, to begin with. The point here is that it depends on your financial situation and goals.
We hope you found this article useful!
Whether you are a first-time or seasoned buyer, the process of buying a car can be complicated if you don’t know the industry that well. The #BreakingItDown series is all about addressing this problem. Stay tuned for more content.
By the way, if you are on the lookout for car insurance or would like to renew yours, apply through us now to stand a chance to win a Petronas gift card worth up to RM300.
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What Does It Mean When Your Car Is Considered A Total Loss?
- By CompareHero.my
- November 30, 2020
Have you ever wondered what it means for you and your car if you’re involved in a traffic accident and the insurer declares your car a total loss? Here’s everything you need to know about total loss car accidents and the five important things you have to do when your car gets totalled. Read below to find out.
If you get into a major motor accident that causes severe damage to your car, there’s a possibility that it could be considered “totalled,” or in other words, unsalvageable. But how does one determine if their car is totalled?
Besides being completely unrepairable, a car is considered totalled when its repair costs exceed its original value. Unfortunately, such traumatic situations have happened – and though we hope you never have to go through it – it would be helpful to know what to do if your car gets totalled.
So here’s a quick breakdown of what’s considered a “total loss car” and what to do when your car gets totalled.
Contents
What does a total loss car mean?
According to insurance companies, a car is considered a total loss when the insured vehicle is damaged or destroyed to an extent that it cannot be repaired or recovered. In other words, the repair costs exceed the actual cash value of the vehicle. An actual value is an amount your insurer will pay after it’s totalled in an accident.
For example, if the damage costs you RM20,000 while your car’s value is worth RM15,000, then your insurer would declare your vehicle as a total loss.
Five things to do after a total loss car accident
Among the main issues, you have to face in the aftermath of a road accident is figuring out how to finance the damages and losses to your car. But if you have comprehensive car insurance coverage, you don’t really have to worry about forking out a huge amount of money from your pocket. We’ve seen the news and pictures of cars being badly crushed in an accident – what if this happens to you?
By the way, if you are on the lookout for car insurance or would like to renew yours, apply through us now to stand a chance to win a Petronas gift card worth up to RM300.
1. Report the accident to your insurance company
First things first, you need to immediately report the accident to your insurer. Filing for a car insurance claim can be a lengthy and tedious process as it usually takes some time for your insurer to sort out the claim approval. It also requires you to submit certain documents that you have to get from another party like the bank. The faster you file the report, the easier the next step will be.
Related: The Ultimate Guide On How To File An Auto Insurance Claim In Malaysia
2. Tow your car to the panel workshop for inspection
Tow to your insurance company’s preferred workshop. The workshop will determine whether or not your car is repairable and how much it will cost.
If the workshop declares that your car cannot be repaired, your insurer will take note of the statement given by the workshop and send an offer letter to you stating that the vehicle is beyond economic repair, meaning the repair cost is estimated to be higher than the car’s value.
Most car insurance companies have their own list of panel workshops that they work with directly and this can help make the entire claim process more convenient. You can contact your respective insurer if you need information on the panel workshop listing.
3. Prepare and submit the required documents to your insurer
Once the inspection at the workshop is complete, your insurance company will send a representative or adjuster to evaluate and assess your vehicle to confirm if your car can be declared a total loss. They will also guide and assist you with the documentation process accordingly. You need to prepare a checklist to make sure you won’t miss out any important documents.
Below are the documents you need to submit:
- Claim form
- Police report
- Copy of Vehicle Registration Card/VOC (Vehicle Ownership Certificate)
- Copy of insured’s and drivers identity card and driving license
- Car grant
- Original Takaful certificate
- Road tax cancellation letter from Jabatan Kerja Raya (JKR) or Public Works Department
- Redemption letter from the bank
The documents required may differ from one insurer to another. Please get in touch with your car insurance company to get a detailed documentation process.
4. Find out how much your car is worth
Knowing the value of your car before the accident can give you an idea of how much the insurance company can cover for you. You can estimate the amount you still owe to the bank just in case the insurance payout is lower than your car loan balance.
Again, your insurer will not pay more than the amount you owe. If there’s an excess or the amount is beyond the policy limit, you have to pay it on your own. However, you should keep in mind that there’s really no clear-cut method to determine the value of your totalled vehicle.
You can find out your car’s market value here.
5. Check your loan to see if you still owe money on your car
If you still owe some money on the car, you will need to get the loan details or payoff quote from the bank. A payoff quote is a remaining amount you would have to pay to satisfy your debt. Knowing how much you owe can actually help you prepare for the claim as you can estimate the amount you would still need to pay if there’s any.
Does car insurance cover a totalled car?
It entirely depends on what is covered by your car insurance company and the policy you signed up for. If your policy includes coverage for total loss, your insurer will review how much you still owe and will send a payment directly to your lender for the actual cash value of the car minus any deductible. A car insurance deductible is the amount of money you will have to pay before your insurer pays the rest of the claim.
For example:
Auto loan balance: RM30,000
Car’s market value: RM20,000
Deductible: RM2,000
Insurance payout: RM30,000 – RM20,000 – RM2,000 = RM18,000
Amount owed: RM30,000 – RM18,000 = RM12,000
The calculation above shows that you owe RM30,000 on the auto loan and your vehicle is worth RM20,000 at the time of the accident, and you have an RM2,000 deductible. Your car insurer would only pay out RM18,000 for your totalled vehicle. You would still owe your lender RM12,000. This amount has to be paid by you unless you have gap insurance.
Gap insurance is an optional car insurance coverage that protects car owners when the claim received from a total loss does not fully cover the amount owed. If you purchased gap insurance, this policy would cover that RM12,000 gap or difference.
An insurance company might not cover a total loss claim for some cases like:
- Not having the appropriate coverage
- Failing to keep up with the premium payments
- Delaying the claim report to your insurance company
- Filing a fraudulent claim
While waiting for your insurance company to send the claim payment to your lender, it is recommended that you continue to make loan payments until your claim is approved. Since the approval process takes time, you shouldn’t skip payments as it could negatively affect your credit score.
If you’re involved in an accident and your car is declared a total loss, your next insurance premium will possibly increase. The higher rate is because your driving record may affect your auto insurance premium rate or cost. Even if you’re not at fault during an accident, making a claim will almost certainly lead to an increase in your insurance premium.
Related: The Cost Of Getting Car Insurance In Malaysia
Your car insurer won’t always cover for every accident, especially when your car is totalled
It is important to know what your car insurance will and won’t cover in the event of a car accident as some providers do not offer total loss coverage. Before signing up for an insurance policy, it would be beneficial to understand if it actually includes a total loss coverage so that you won’t end up losing a lot of money paying for a vehicle you can no longer use.
We hope you find this article useful when navigating a total loss claim process with ease.
Related: 3 Main Types of Car Insurance Coverage (And What They Actually Cover)
