We have an old car in the family expiring next year, and I’m sure everybody out there is wondering the same — will COE fall?

My personal opinion is that it may fall a wee bit (Category A at around $50K) but may not fall further than that.

Vehicle population growth rate has been reduced steadily from 3% to 1.5% to 1% and now 0.5%. I believe it may be further reduced next year, and it may possibly be capped at close to 0% growth because that’s really the limits of our infrastructure and limited land space.

So if you are in such a situation, what’s the best way to get a cheaper car if you really need one?

It’s actually very simple, but there’s one catch: you’ll need to pay fully in cash (no leverage).

The trick is to buy a car with 1 year or less left on the clock, and renew when you think it’s right.

Take for example a relatively new Jan 2013 Toyota Altis selling at close to $100K. The depreciation is about $12.5K/yr.

If you bought an old Aug 2005 Toyota Altis at around $17K and renewed the COE (assuming current price at $66K), you will pay $17K + $66K = $83K for around 128 months of usage. This works out to a depreciation of only $7.8K/yr.

No doubt older cars will also come with rising road tax (capped at 150%) and rising maintenance costs, and possibly even poorer fuel economy, but with the savings of almost $5K/yr you could spend that on an engine overhaul and still have spare change for a small holiday.

If you feel that such a hefty sum of money can be better used to invest, then there’s only one way to leverage: long time owners of private properties can consider a mortgage term loan (using property as collateral) to partially finance COE renewal.

Even if interest rates rise to 3%+ it may still be cheaper than a conventional vehicle loan because a mortgage loan is a reducing interest loan while a vehicle loan is a fixed interest loan.

Business owners with overdraft facilities can consider too, if the vehicle is to be used for business purposes.

I do not encourage taking a loan on the full value of COE. Although any unused amount of COE is fully redeemable, interests can get quite hefty, especially when OD interests are around 5-6%.