In Singapore, the words ‘cars’ and ‘bargains’ don’t exactly go hand in hand. The real cost of car ownership here has reached a point where it makes one feel silly even thinking about it. That is, unless you face these two exceptions in which you actually get some value from cars: becoming a private car hire driver with a rental, or shopping at used car dealers.
Assuming you covet the idea of owning your own set of wheels, it is still possible to uncover some gems in the used car market. They are not all pieces of scrap metal that look like it would fall apart once you start the ignition. All you need to do is bear the following four criteria in mind:
Much like some over-zealous sellers on Carousell, second-hand car sellers would say anything just to upsell their junk and stuff quick cash into their trunk. To ensure you are not buying a lemon, inspect the important components of the car. These include all that metallic intestines packed under the bonnet, the paint job, the wheels, mileage, interior and more. Even better, take it out for a test spin.
Pay attention to weird, chortling noises. If the car emits sounds like you’ve stuck a brolly into a spinning fan, it might indicate deteriorating engine conditions. The higher the mileage clocked, the higher the chances the car had seen the better part of its glory days.
Check the interior too: you’ll never know what the owner had been up to in the backseat. Don’t despair if you do find unsightly wear and tears, because this presents itself a golden opportunity to haggle for lower prices.
Before you go shopping for a second-hand car, do your homework. Consult either Google or a really savvy motoring friend. They’ll tell you there are certain brands out there that are notorious for breakdowns (thus, higher maintenance costs that are really not worth the trouble) while there are some that are known to last the distance. So, choose wisely.
Number of Years of Ownership
Knowing the number of years of ownership is so you know how much the car has depreciated from its original value. It is widely known among Singaporeans that automobiles are one of the worst investments you can ever make, because its value drops as soon as the purchase is made. Specifically, cars usually depreciate by about 20% in the first year, followed by 10% subsequently. Like how investors love to wait for one particular stock to ‘bottom out’, it is not too different here. How do you know when the ‘optimum’ year within the 10-year Certificate of Entitlement (COE) period to buy a second-hand car is?
We would say the fourth year onwards is a good bet, after the car has taken the brunt of the depreciation. But in a recent report released by Channel NewsAsia, it seems that the general consensus among dealers is that drivers are increasingly opting for used cars aged between six and nine years old. These cars might be reaching the end of their lifespan, but they do make for a more logical purchase in light of rising COE costs. Moreover, if you managed to scout one that is decently functional and capable of getting you from point A to B, why not?
Open Market Value (OMV)
Three years after tightening their car loans policy, Monetary Authority of Singapore (MAS) has eased the legislation; vehicles with Open Market Value (OMV) of S$20,000 and below entitle owners to a maximum loan-to-value (LTV) of 70% (up from 60%) of the purchase price, including taxes and COE. Anything above S$20,000, the loan ceiling is reduced to 60% (up from 50%). The loan tenure was also revised to be capped at a maximum of seven years, up from five years. As for the OMV of the used car itself, it is determined by taking the original OMV and pro-rating it according to the number of months left on the COE.
Let’s use an example of a used Toyota Camry with an original OMV of about S$25,000, and with five years remaining on the COE:
[25000 / (12 x 10)] x (5 x 12) = S$12,500
Since the OMV is below S$20,000, you qualify for a loan up to 70% of the purchase price.
That isn’t something to cheer about. With higher loans come higher interest payments; you know that, don’t you? Considering that the loan tenure has been capped to a shorter term, banks would try to increase interest rates to make up for the loss in revenue, compared to what they would have pocketed in an extended tenure. Therefore, for serious used car buyers, the ideal scenario is to have enough liquidity to pay both the down payment and outstanding loan in full.
But if you find yourself seized by an inexplicably compelling need to drive, and the interest costs are defeating the purpose of owning a used car, look past the PARF cars and make do with the bare essentials of a COE car.
PARF or COE?
Let’s get a little technical. When you deregister a car, you can qualify for two main categories of rebates: COE and Preferential Additional Registration Fee (PARF). If an owner de-registers the car within the 10-year depreciation period, he can qualify for both PARF and COE rebates. The PARF rebate is calculated based on a certain percentage of the car’s Additional Registration Fee (ARF). However, if an owner only deregisters after continuing payment for a renewed COE (five or 10 years), he can only qualify for the COE rebate, which is calculated based on the Prevailing Quota Premium (PQP) and number of months left on the COE. The rebates are factored into the resale value of the used car.
Now that we have gotten the technical jibber-jabber out of the way, which one should you go for? As with everything else, there is good and bad to each choice. PARF cars are typically newer and they retain most of their OMV, which means you might have to cough up more cash for the down payment. Conversely, COE cars would be more suitable for those working on a shoestring budget and have absolutely no qualms about driving a tin can.
Again, choose wisely.
Don't auto-renew your car insurance
Getting a used car. Make sure you don't blindly auto-renew your car insurance. If you have really deep pockets and car insurance premiums are akin to pocket change, then sure, go forth and leave the auto-renew in the rear view mirror. But there is the other group that holds the purse strings like their lives depend on it, so much so that a slight increase in premiums is enough to send them into panic attacks. This is exactly what happens if you continue to leave your insurance on auto-renew because it robs you of the opportunity to shop around other insurers for better deals.