Ahmad is a single man and a software engineer living in Gombak. His workplace is located in Bandar Utama. His net income is RM 3,000. The distance between his place and his workplace is 20.5 km. Ahmad had a problem: he barely arrived at his workplace in time and sometimes arrived late. He goes to his work by public transportation which is LRT. He is thinking about buying a car for him to go to work. But he is not sure yet whether to buy a car using a car loan or no loan and if he buys a car will it be worth the cost instead of using other transportation.

Ahmad goes to his work by LRT and needs to pass 18 stations to reach the nearest station to his office. In the morning, he needs to wait for his train and scramble to get on the train or even stand on it because of too many passengers. Most of the time, the train was delayed because of old vehicles and caused him to be late to work. But he thinks that using public transportation is more cost-saving because he doesn't need to pay for any installment, maintenance, gas and other costs if he buys a car. He pays RM5.60 using Touch n Go to get a cheaper price every morning when he goes to work and when he comes home. But he knows one day he will have to own a car for the ease of himself.

If he decides to buy a new car and to take a car loan, he needs to find a maximum price of RM 36,000. Because his income is RM 3,000 monthly so the price for his car needs to be equal to or below his annual income which is RM 36,000 to pay for the loan. He found a second hand Myvi at RM 30,000 in Mudah.my. The Down Payment usually will have three choices whether 10%, 20% or 50%. The installment to the bank will depend on which Ahmad chose his downpayment plus the interest. Ahmad did some research for the best way to buy a car and how he is going to choose his way to pay the loan. After several times, he found out a tips which is 20-5-15. 20% is the downpayment. Reason to choose 20% is to reduce the amount of loan to the bank compared to 10% or no downpayment. If he chooses 50% he will get charged for income tax. Next, 5 is the period for installment which is 5 years. Reason to choose 5 years of installment is to reduce the interest rate from the bank. The interest rate is usually 3% using the flat rate method. The longer we are paying the loan, the more interest rate we need to pay. 15 represents 15% of our income to pay for the installment.

Somehow Ahmad also wondered about the complications of him buying a car without taking a car loan. He has approximately RM 65,000 that he saved from a young age in his savings. If he decides to not take the loan, he does not need to pay for the monthly installment and pay the interest rate to the bank. It is the cheapest option to buy this car. It is more simple and straightforward process compared to buying a car with a loan. He also can sell the car anytime he wants if he wanted to as he wholly owns the car. But there are some cons if he decides not to take the loan. There will be no emergency money as he spends most of his saving money for the car. It is important to always have a nest egg for himself or his family. Even Though he can sell the car back to find emergency money, the car is already depreciated and will not help him much to get the money back.

If he decides not to buy a car, he has a choice to buy a motorcycle. The price is much cheaper compared to a car. The costs are also lower. The petrol for motorcycles is more economical and does not need to pay for the toll. The insurance is also much cheaper as well. He found a motorcycle model that is below RM 5,000 which is a Honda Wave Alpha. The monthly installment starts from RM 132. But if he decides to buy a motorcycle, he thinks that it will not be suitable for him in the future as he plans to get married and have a family in a few years. He thinks that he still needs to buy a car after having a family. So it is better to get a car before the marriage.

Problem statement

Ahmad always arrives at his workplace barely in time and sometimes he is late. He wants to start to have his own transportation, whether a car or motorcycle. If he buys a car will it be with loan or no loan. Taking a loan makes him think about the interest rate that he needs to pay for the bank. Not taking a loan will make him escape from the interests but it is not safe for him financially after he made the purchase.

If he buys a motorcycle, he is relieved from all the financial issues but it will not be the best transportation for him in the future as he wants to build a family. He needs to apply the concept of decision-making in this situation.

Perform an analysis of the problem Ahmad facing and prepare a report that summarizes your findings and recommendations. Include the following items in your report: Describe with decision tree.

Question:

1. A recommendation regarding what Ahmad should do if he wants to buy a car with a loan.

2. A decision strategy that Ahmad should follow if he wants to buy a car or motorcycle without a loan.