Costs Associated With Buying a Car in Singapore

It’s peak hour. You’ve become a human sardine, packed breathlessly into the MRT. A car would sound good right about now, wouldn’t it? It’s convenient, freeing, and releases a person from sweaty commuter hell. There’s more legroom, too. Public transport was made for those who like to suffer.

But it’s not easy to become a car owner. The government wants a “car-lite society” where – that’s right – we’re expected to rub shoulders with strangers in stuffy trains and buses every morning and hope the boss doesn’t dock our pay for being late.

Let’s not forget how expensive cars actually are. Millennials blow the most money on their own personal sedan – all in the name of convenience. Let’s pretend for a moment that peak hour traffic isn’t an issue: is buying a car in Singapore really worth all that money? How much does it cost, anyway, to become a first-time car owner?

Costs that come with buying a car

The price of a spanking new ride isn’t as clear cut as one might think. These are the components that go into determining how expensive one’s first car will be.

Let’s use a Toyota Corolla Altis as an example for easier understanding

Open Market Value (OMV)

This is the “base price” of any car up for sale across any country or market inclusive of manufacturing and shipping costs to our sunny shores.

OMV of Toyota Corolla Altis: $18,690

Additional Registration Fee (ARF)

However, this is where things start to heat up. In Singapore, tax is imposed on cars during registration. ARF is determined by the OMV of a car.

ARF of Toyota Corolla Altis: $18,690 (100% of OMV for first $20,000)

• Vehicular Emissions Scheme (VES)

A surcharge/rebate on ARF, to encourage Singaporeans to purchase more environmentally-friendly cars,  every car will be graded on how pollutive it will be. The most pollutive cars will be slapped with a $20,000 surcharge. While the greenest cars can be entitled to a rebate of up to $20,000. Read more about it at OneMotoring.

Our Altis is graded as a neutral car under VES, so it does not get a VES rebate or surcharge.

Excise Duty and GST

There are more taxes to be shocked about! Excise duty is an additional tax imposed on goods, and will cost 20% of a car’s OMV. And after including excise duty, 7% GST will be slapped on the new amount as well. For potential car owners, this might spell more pain, since GST is expected to hike up to 9% in the future.

Excise duty amount for a Toyota Corolla Altis: $3,738
Additional GST: $5,307.96

As you can see so far, the bulk of the charges are determined off a car’s OMV, for those who are looking for a deal, brands that offer competitive OMVs will generally result in more affordable cars, but higher OMV vehicles cost more upfront but have a better resale value or scrap value.

LTA displays OMV prices for common models of cars ar OneMotoring.

Dealer’s Profit

Lastly, the dealer will need to earn some money. So they slap a profit margin at the end – which can be figured out by subtracting all the above costs from the advertised sticker price of the car.

Of course, paying a dealer margin, means you are getting max value for money.

Certificate of Entitlement (COE)

A COE is a key part of owning a car, since it’s the certificate that allows a car to be driven for 10 years. A typical, ballpark amount for a COE would come up to around $40,000 – but COE prices change monthly.

Note that there are five COE categories in total, depending on engine size and vehicle type, but hopeful car owners only need to pay attention to the first two.

COE for Toyota Corolla Altis (based on the latest pricing): $37,000

COE for Off-Peak Cars

For those who are cringing from these prices, there is an additional alternative: purchasing off-peak cars under the Revised Off-Peak Car Scheme (ROPC). This essentially only allows a person to drive her car on the weekends and on Public Holidays, in addition to weekdays from 7am to 7pm.

Recently, however, there have been less off-peak cars on the roads of Singapore. One possible reason for this is because it heavily restricts car usage outside of the times someone actually needs a car, like driving home from work in the middle of the day or anywhere else. It may not be such a good idea for someone who wants to drive a car as his main mode of transport all week long.

Another reason would be because COE prices are now relatively low compared to when Cat A and B hovered near 100k in 2013! The OPC scheme is only popular during high COE periods and loses its appeal when COE prices are (relatively) cheaper.

Additional costs

The paying doesn’t stop there. There are two other things to take note of when buying a car:

Motor Insurance

This is a must-have for anyone buying a car. For new car owners, insurance premiums typically start around the price of $1,250 per year. However, it is possible to find insurers who offer lower premiums, as long as you suit their profile of a “safe” driver.

It’s important to take note of the excess amount each insurer provides along with coverage. Excess refers to the amount one has to pay before they can claim from their insurance, much like deductibles for health insurance. If one suffers an accident on the road and incurs a cost of $600 for repairs, but his motor insurance excess is $600, then no claim can be made and all costs will be borne by the driver.

Road Tax

Yet another tax to haunt the prospective car owner’s dreams. Road tax cannot be evaded, and the yearly amount a driver needs to fork out depends on the type of car.

For example, a 1600cc Toyota Corolla Altis, brand new, will incur $724 per year in road taxes. Here’s a road tax calculator that will derive the amount for us.

As a rule of thumb, road tax amounts share a correlation to the engine capacity of a car. The lower it is, the lower your road tax per year.

Taking a loan? Take note

It won’t be easy forking out all that cash upfront when buying a car for the first time. That’s why most people default to taking auto loans. But before jumping straight into incurring another huge loan, there are a few important pointers.

Loan rules

The amount one can borrow is based on a car’s total price. Here, let’s assume a car’s price is $100,000.

A car’s total cost is inclusive of OMV, ARF, COE etc. Based on a car’s OMV, one can borrow either 60% or 70% of their car’s cost.

If the $100,000 car has an OMV of only $19,000, then the available loan amount will be $70,000 (70% of its total valuation). Note that we said maximum because the actual loan amount may be smaller than that, based on various factors.

Total Debt Servicing Ratio (TDSR)

And one such factor is a person’s TDSR. The rule of this ratio is that a person cannot use more than 60% of his or her income to service loans, whether it’s for a mortgage or for buying a car to impress the ladies.

Other important factors to be taken into consideration include a person’s monthly income, existing financial commitments, and their credit score. So don’t be shocked if the loan amount granted is less than what was expected.

The reason why there’s so much to consider before a loan is granted to you is because owning a car is a huge financial commitment – not something that just requires a one-off payment. Falling behind on something like road tax or servicing one’s auto loan can spell trouble down the road (ha!) if one isn’t financially prepared.

Questions to ask before committing to buying a car

How do you know if you’re ready to be a car owner? Ask these questions as you consider your next move:

• If you were to lose your job, can you still service your car loan for the next six months?
• What is your loan amount, and is the repayment amount going to affect your expenses drastically?
• How often do you intend to use the car, and is that worth the hefty price tag?

Tips for buying a car

Here are some tips to take note of when buying a car in Singapore, especially with regards to COE.

• Car prices decrease only when COE prices decrease.
• COE prices fluctuate based on supply and demand, economic conditions, and whether manufacturers are heavily competing with one another. All of these factors, however, are hard to track. Therefore, it will be difficult to predict when the next dip in COE price will occur.
• COE bidding opens on every first and third Monday and closes on every first and third Wednesday of the month.
• Do not purchase a car the days just before bidding dates, as dealers might hike up prices to cushion their margins against unpredictable COE prices.

The danger of depreciation

For those who are intent on buying a car, it’s worth mentioning again that this is a huge financial decision to make – especially in light of how quickly cars tend to depreciate over the years.

Depreciation is roughly calculated by subtracting a car’s scrap value from its original purchase price and then divided by the number of years left for its COE. So why is this important? In essence, as the years count down, that’s the money you will be losing.

Car resale prices also depend heavily on the rate of depreciation.

This can hit car buyers in many ways, for example, after a few years one decides that owning a car is too much of a financial hassle and burden and wants to sell it off, one will incur losses as a result of depreciation, furthermore, depreciation occurs heaviest during the first few years of ownership – the cost of enjoying that new car smell.

Furthermore, a car loan doesn’t disappear once you sell off the car. Proceeds from selling the now-cheaper car will most likely be unable to help cover the rest of your car loan.

Let’s also not forget the years of road tax and insurance premiums one would have paid by then. A person would have wasted tons of money because of a decision they decided to take back.

Owning a car may be a mark of prestige and status to some, but at its core, it is a hefty financial commitment that should not be made recklessly. Before jumping into the world of a car owner, decide first if you’re capable of sustaining the running costs for the next ten years. Your future self will thank you for it.