Car ownership in Singapore is a costly matter. Thus, you may want to seriously consider the need for a car since Singapore has a good public transport system. If you really think you would need/want a car, you should evaluate your financial situation before committing. In this post, I try to compile a “all the costs that you need to know” guide at your convenience, as I feel it is important to understand the financial consequences. Please inform me if I left out something or any errors that I have made, so we can all learn from it. Hope you find it informative.
- Open Market Value (OMV) – Varies from car to car and period of import (check here)
- Registration Fee – $140
- Additional Registration Fee (ARF) – 110% of OMV
- Excise Duty – 20% of OMV
- Certificate of Entitlement (COE) – Varies monthly and in 3 Categories (check here)
- Goods and Services Tax (GST) – 7% of OMV and custom duty
- Local Installation – Depends on dealer
- Dealer marketing and operation cost
Cost Price = Sum of 1-8
Selling Price = Indicated by Dealers
Taking the selling price minus the cost price would give you the dealer’s profit, and you would roughly know how much the dealer is earning.
Open Market Value (OMV)
Defined by LTA – “OMV is assessed by the Singapore Customs (Tel: 6355 2000), taking into account purchase price, freight, insurance and all other charges incidental to the sale and delivery of the car from country of manufacture to Singapore.” To put it simply, the cost of getting the car to land in Singapore shores.
Certificate of Entitlement (COE)
Due to Singapore’s small size, control of car population is important to prevent congestion on the roads. The government implemented the Vehicle Quota System which regulate the number of new vehicles to be put on the road, through the monthly issuance of COEs. Without a COE, you cannot own a car. The price of COE varies every month and is quite a substantial contribution to the car price (about additional 9k to 30k). You can always go to http://www.onemotoring.com.sg/ to check the latest figures.
- Petrol – $300 a month (estimate)
- Road Tax – Base on engine capacity (see breakdown below)
- Radio License – $27 per year
- Insurance – depends on applicant’s risk assessment (typical range $800 – $2,000)
- Maintenance – depends on driving frequency
- Parking – HDB Season parking monthly $65 (open air), $90 (sheltered);
Office season parking monthly, CBD area: $160 – $330;
Cashcard parking, average $2/hr and up to $4.80/hr in CBD area;
Coupon parking per half hourly: $0.50 (white lots) or $1 (yellow lots).
- ERP – depends on the frequency you drive in ERP zones
- Inspection Fees – For cars 3 – 10 year old: $58 biannually
- Fines – cater for occasional parking fines
- Car installment – if you are taking a loan (see car loan section)
Expect a monthly running cost of at least $800 for the cheapest car (with car loan).
Road Tax for Hybrid Cars
A calculation example from onemotoring:
An engine capacity of 1490cc and maximum power rating of 33kW:
Based on engine capacity, 6 mths road tax = [$250 + 0.375 x (1,490 – 1,000)] x 0.92 = $400
Based on electric motor, 6 mths road tax = [$250 + $7.5 x (33 – 27.5)] x 0.92 = $268
The road tax for the hybrid car will be the higher of the 2 calculation which is $400 per half annually in this example.
Most banks still use the traditional Rule of 78 to calculate car loan interest which is very unfair to the borrower. This method actually slaps the borrower a sum of interest right at the start of the loan, and it does not make a big difference whether you repay early. To make it worse, some banks actually have penalties for early loan redemption (please check before you commit). This has become such a profitable avenue that banks actually collaborate with the dealers to encourage buyers to take up loans. If you have the cash and want to pay in full, dealers may not give you the discounted price and would likely forfeit the freebies. It is also rumored that agents earn more through loan commissions than from selling cars.
Thus, is it worthwhile to pay more upfront than take up a higher loan amount?
The answer would be yes as you would be less ‘victimized’… unless you are sure that you can get good returns through your investments, such that the profit is enough to cover the higher interest amount incurred.
An example of calculating the car loan interest:
First you need to determine the amount you need to borrow (selling price minus downpayment) and the number of years you want to repay. The maximum years you can choose is 10 years. Note that the higher amount you loan or the more years you take to repay, the higher the interest incurred.
Amount to be borrowed = $50,000
No of years: 7
Interest Rate: 3% (Varies from time to time)
Formula: Interest = (Interest Rate) x (Amount Borrowed) X (No. of years)
In this e.g., Interest = 3% x $50,000 x 7 = $10,050
Monthly Installment = (Amount borrowed + Interest)/(loan period in months)
In this e.g., Monthly Installment = ($50,000 + $10,050)/(7 x 12) = $714.88
To see the effect of extending loan period to 10 years:
Interest (10 years) = 3% x $50,000 x 10 = $15,000 (+$4,950)
Car Loan Redemption
Based on Rule of 78 and a 20% penalty
Formula: D = [M(M + 1) /N(N + 1)] x I x 80%
D – Discount for early redemption
M – Balance of loan period (in months)
N – Original loan period (in months)
I – Interest of loan
A scenario of a loan redemption:
Let us say, in the previous e.g., you decide to redeem your loan early after 2 years (5 years left).
D = [60 x (60 + 1)] / [84 x (84 + 1)] x $10,050 x 0.8 = $4,121.34
Interest charged to you = $10,050 – $4,121.34 = $5,928.66
Hence, within 2 years, you are penalised for almost $6,000 when you are only into less than half the loan period.
Thus, try to reduce the interest payable before you apply the loan and not after.
Preferential Additional Registration Fee (PARF) Value
When you scrap or deregister your car, you can get back some value from it which is use to pay back your outstanding loan. From LTA: “PARF value is simply the value that you can get back from de-registering the car at the point in time. However, you cannot get back in monetary terms; you can only use the PARF/COE rebate to offset the various upfront vehicle taxes and fees when you register a new car, namely, the Additional Registration Fee (ARF), the COE Quota Premium (QP) and the Registration Fee (RF). Any excess amount that is not used will be forfeited. You can also use a COE rebate under your name to offset the Prevailing Quota Premium (PQP) when you renew your existing vehicle’s COE.” Alternatively, you can sell it to dealers who would use it to offset the purchase of new cars for customers. However, they may offer a few hundred dollars less for it.
PARF Value = PARF rebate + (no of yrs of COE left /10) X COE value paid
ARF = 110% X OMV
If you noticed, you get the highest rebate within the first 5 years. That is why it is common owners de-register their cars between 3-5 years.
Every car in Singapore needs to be insured. It is being assessed by a number of factors like your age, driving experience, type of car etc. Generally, insurance for young drivers (less than 26 years old) and higher engine capacity cars fetch a higher premium. Insurance coverage is only valid for one year and at the end of it, new applications have to be made and some companies offer loyalty discount to retain customers. If for the past year, you have not made any claims to your policy, you will be entitled No Claims Discount (NCD). The discount increases 10% annually up to a maximum 50%. It should not affect your NCD if you switch insurance company, but check with your insurer to be sure.
Try to go direct to insurance companies to buy your insurance as you would save about 2%, as oppose to applying it through an agent. You can easily call up a insurance companies to get a direct quote and do your comparison.
As oil price is increasing, it would be less financially taxing to buy fuel efficient cars or even hybrid cars. Hybrid cars get a discount off their ARF (minus 40% of OMV). Besides initial discount, annual road tax is likely to be cheaper as well. Coupled with lower fuel expenditure, running cost can be kept to the minimum. Although hybrid cars are generally more expensive than normal cars, owners claimed that they could breakeven within 2 years of driving. Buying a faster, bigger capacity car would translate to higher fuel consumption, insurance and road tax.
As you can see, car ownership in Singapore is costly and is one of the bigger financial decisions you would make in your life. Do consider carefully before you commit.
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.