My car’s Certificate Of Entitlement (COE) is ending in Dec this year. It is common that car owners at this stage would start scrolling through sgcarmart.com for the possible next ride.
New Or Used
The first question on my mind was, to buy a new or used car?
The prevailing COE at the time of writing was S$52,301. This amount is much higher than the total car price that I have paid for my current cheapo Korean car. I have an anchoring bias and it is difficult to pay for something that cost me much cheaper before. Somehow, I just can’t bear to buy a new car now solely based on the COE price.
So the answer is to look for an used car.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
It would be confusing if we merely look at car price alone, because they have different makes and models, and registration dates. The most consistent way is to look at the depreciation rate. If you got no clue, head on to this article which explained it simply.
I have a strategy which was to look for cars with COEs with about a year remaining. There are multiple advantages. First, the car price would be low such that I can make a one-time payment without the need for a car loan and pay additional interests for the car. Second, if the COE prices drop in the near future, I would be in a position to take advantage of the situation and register a new car at a lower cost.
I could accept around a $7k-$8k depreciation rate and the search results spewed out mostly Off Peak Cars (OPC) or China-made cars which I have difficulty trusting my life in them.
The cars which I would probably be keen on are going at depreciation of about $10k.
And we need to add in the running costs such as petrol, insurance, road tax and more. The estimated running cost would be $15,876. Read this article for the breakdown of the running costs.
The total cost per year (depreciation + running costs) would amount to $25,876.
The Uber Test
What if I set aside a budget of $25,876 a year for Uber rides?
My history says that each Uber ride averages about $15 per trip.
Divide budget by cost per trip, I can take 1,725 Uber rides a year, or more than 4 rides a day. More than enough for me to get around liberally.
The Uber Test suggests that I should not be buying a car after considering the financial aspect of owning one.
You may argue from a family and convenience perspective would yield a different decision. There is nothing wrong about it as these factors can be priorities. For example, if I ferry my wife to work every day, there would be more economies of scale for owning a car.
Nonetheless, it is useful to do the Uber Test!