I have several friends asking me for advise on their car purchases — especially used ones because the process is more complicated, so I have decided to write a guide instead of having to repeat over and over again.
Disclaimer: Buying a car is a big financial purchase, so there are many variables to consider. You must do your own due diligence regardless of my advices/recommendations.
Know your needs
Ask yourself these questions:
- Do you really need a car?
- What kind of mileage do you do every month? Are you a going to drive a lot?
- Do you need a 7-seater for a big family?
- Do you often carry large and tall items?
- Will you drive into Malaysia?
- Will you be sharing with your spouse or siblings?
- What other uses do you need the car for?
All these decisions will affect the type of car you purchase. For example:
- A travelling salesman may want a fuel economical and reliable car to reduce running costs.
- A recreational cyclist with foldable bikes may opt for a hatchback or an SUV to fit the bikes.
- A big family of 7 may want an MPV instead.
- A regular traveller to Malaysia may want to avoid cars popular for theft, like Hondas and Toyotas.
- A person sharing with his/her spouse/siblings may need to consider their needs and budget.
- A single and lonely man may want a convertible Mini Cooper to impress the ladies at the club.
Know your budget
Hint: At least $1,000/month.
A car is a big purchase, so setting a budget is important. As a general rule, the overall expenses of car ownership in Singapore starts around a minimum of $1,000/month.
Typical expenses breakdown
|Depreciation of a typical bread and butter car (as of 2014)||$6,000/yr or $500/mth|
|Insurance of a first time buyer with 0% no-claims discount (NCD)||$2,400/yr or $200/mth|
|Fuel cost of travelling approx 2,000km/month, 12km/l @ $1.75/l||$292/mth|
|Parking in HDB sheltered carparks||$95/mth|
|Road tax for a 1,500cc (1.5L) petrol car||$686/yr or $57/mth|
|General servicing of vehicle every 10,000 kms||$600/yr or $50/mth|
|ERP (tolls), parking at the office, etc.||$100 to $400/mth|
Other costs to consider
It’s easy to forget that these are also daily costs of a driving a car in Singapore: –
- Parking at home, at work, at shopping malls, at parent’s or friend’s
- ERP in both directions of travel
- Traffic and parking offenses
- In-car camera — an almost mandatory accessory in cars these days
- Battery and tyre replacement every 2-3 years or so (rubber gets hard, so do replace them even if they are not worn)
- Other incidentals like tyre punctures, especially if you work near construction zones
- Unfortunate incidents such as accidents, vandalism, hit-and-run and associated repair costs
- Car wash/grooming/beautification/”zhng”
Understand the tax structure
Additional Registration Fee (ARF)
Understanding how the ARF tax works is the key to understanding how to calculate the straight-line depreciation for a vehicle in Singapore.
- Cars less than 10 years old are usually called PARF cars because they carry a Preferential ARF (PARF) value. PARF value is a percentage of the ARF (right now it is 50%) that is given back to you if you dispose the car at the end of 10 years. This is to encourage purchase of newer and more green/efficient vehicles.
- Cars that are 10 years or older are usually called COE cars because they no longer carry a PARF value and only carry a COE value.
Certificate of Entitlement (COE)
Most cars in Singapore are sold with COE unless stated by the seller. If you see the terms “body only” or “w/o COE” then it would mean the price does not include COE.
Used Import Cars
There are also used import cars where the registration date of the car starts before the COE hence have more complicated depreciation calculations; I would recommend a first time buyer to avoid these. Used Imports are typical with high-end sports cars, as the savings can be significant.
There’s simply too much to cover here, so please Google and read up on these terms: OMV, ARF, PARF, PARF rebate and COE. A very detailed summary is available on LTA’s website but may be too confusing for a first timer.
Work your sums
Hopefully a table is easier to digest. Just add these all up.
|PARF cars||COE cars|
|Annual depreciation formula||(Purchase Price – Min. PARF) / (No. of months of COE remaining / 12)||Purchase Price / (No. of months of COE remaining / 12)|
||Same every year||Increases 10% every year, maxed out at 150% (at year 15)|
|Insurance||Comprehensive or 3rd party (only if not under loan) cover||Mostly 3rd party cover only, i.e. does not cover your own car in an event of an accident; there are some insurers that will still provide comprehensive cover for cars between 10 to 15 years of age.|
|Financing||Max. 5 years, or up to remaining lifespan of COE; interest rates between 1.88-2.88%||Only available for cars less than 15 years of age; otherwise usually financed using personal term loans with very high interest rates (4-5%)|
|Maintenance costs||Increases with car age; big ticket repairs usually starts above 5 years or 100,000 kms||Same as PARF cars, increases with car age, but COE cars are even older, so will run a higher bill if anything breaks; parts may also be hard to find depending on the model of the car|
|Fuel economy||Similar to maintenance costs, fuel economy tends to get a little poorer when the car ages, especially if not maintained properly||Similar to maintenance costs, fuel economy tends to get poorer with age, but cars built before 2000 have older engine technologies that yield even poorer fuel economy|
|Safety||Generally better since most cars built after 2004 should have at least an airbag and ABS||Generally poorer as safety technologies improved rapidly only in the last decade|
Things to watch out for at the delaer
Unlike new cars which usually come with a 3 or 5 year warranty, used cars dealers can be dodgy. Here’s some pointers when hunting for a used car: –
- Don’t trust the mileage. Mileage tampering is possible and is prevalent.
- Don’t trust the paintwork. Most dealers get a cheap single-coat respray done before cars hit the showroom.
- Look beyond the paintwork. A car is a mechanical device and a beautiful car that doesn’t move belongs to the museum.
- Take a careful look at the interior. Interiors are expensive to replace or repair, and will tell a story of its use/care/abuse.
- Switch off the radio during a test drive. Pay attention to knocking, grinding, squealing or other weird noises when driving; red flag if dealer does not allow you to test drive.
- Pay a “surprise” visit. Don’t inform the dealer that you are coming; sometimes vehicles may exhibit issues when cold (especially transmission issues), so if you tell the dealer in advance they may warm up the car before you arrive.
- Minor issues are okay, but don’t count on the dealer making repairs for you. You will be better off asking for a discount and then getting a trusted mechanic to fix minor gremlins.
- Be sure to ask about the loan rates, the financial institution, the payment process, admin fees (aheem, salesman commission), insurance and road tax; red flag if they offer high interest rates for “in-house” loans, high admin fees (above $500).
- Have an experienced person help check the car for you, or at minimum have it inspected for accidents and visible issues at STA — they have laser chassis alignment measurement machines.
- Usually the buyer pays for inspection and a deposit to the dealer should not be required; red flag if dealer insists you place a big deposit before sending the car for inspection.
- Make sure you work your sums carefully, including the downpayment, financing, transfer fees, insurance, and even road tax.
- Take your time and shop around, don’t be swayed by sweet talking dealers; a car is a big purchase and you should shop carefully.
Direct owner sale
I personally prefer direct owner sales, since I will get to really know the car’s history from the owner. Be wary though, there are many dealers masquerading as direct owners to circumvent the Lemon Law introduced in 2012. One way to tell is that they are selling on behalf of friends/family member/relatives, do not have maintenance records of the vehicle and that they also offer to help with the loan and insurance paperwork. It may be a sign that the car has some serious issue(s).
The buyer will have to source their own insurance and loan in a typical direct owner sale, but it is not difficult these days as there are insurers and banks that offer direct applications online. The whole process may be too much cover here, and I hope to cover it in a separate article someday.
You’ll see that a car will cost over $1,000 a month to run in Singapore. I’m sure this will turn many potential car buyers away, but if you really need a car and you can well afford it, then do consider one as it brings significant improvement to your quality of life but do not rush into the purchase.