Published on March 8, 2022
Buying A New Car For The First Time – On Finance, COE and More
Part I: Introduction
Owning a car has been, and still is an aspirational goal for many Singaporeans despite the high costs that come with car ownership. In a survey conducted by the Economic Intelligence Unit (EIU) in 2019, Singapore remains the most expensive place in the world to buy and own a car.
However, many Singaporeans are undeterred by the high costs and would take up loans to finance their new cars. This can be attributed to the convenience and empowerment a car affords, in addition to the boost in productivity and time-saving factors. To regulate Singapore’s car population in a “free market” manner, the government introduced a Certificate of Entitlement (COE).
Read on to find out more about buying and financing a new car in Singapore.
Part II: Things To Consider When Purchasing A New Car
Similar to buying a house, purchasing a new or used car in Singapore requires a financial commitment. Even though you can always take on a loan for your new or used car, it is still best to not make an impulsive purchase for this big-ticket item.
Hence, we’ve come up with 5 important factors to consider before purchasing your car in Singapore:
1.Budget and affordability
Many first-time buyers may be tempted to splurge on their first car, however, it is crucial to consider your financial capabilities so that you do not end up purchasing a car that you are unable to upkeep. A car should be an asset providing convenience instead of a commodity that ties you down financially.
Hence, some important questions that you can ask yourself when deciding on a vehicle are: Do I need such an expensive car, or will a more affordable one suffice? Will the financial implications weigh me down in the long run? In addition to the cost of the car, there are other additional fees that come with owning a vehicle. There are four parts to the cost of a car aside from car maintenance fees, road taxes, parking charges, car insurance, and petrol.
Also known as Additional Registration Fee (ARF), this is a tax imposed upon your car after it is registered. A tiered rate based on the percentage of the Open Market Value (OMV) of your vehicle is used to calculate the ARF, and thus the amount differs for each vehicle. It is pertinent to calculate the ARF to ensure it does not exceed your budget.
COE refers to the Certificate of Entitlement and provides you with the right to own a vehicle in Singapore. The prices of COE differ every month, playing a role in determining how much money you will need to fork out when buying a new car.
As mentioned earlier, OMV is a baseline sticker price of a vehicle. It indicates the price payable for cars imported into Singapore, whilst showing the value of this car in other countries. The OMV is an important consideration to figure out if you should purchase this vehicle.
Excise Duty and GST
Excise Duty is a tax imposed on specific goods and services, with one of them being cars. Excise duty on cars is calculated by taking 20% of the OMV. Furthermore, an additional 7% GST will also be taxed on both the excise duty and OMV – all these when accumulated can turn out to be a significant addition to the cost of your car.
Instead of stressing over these calculations, you can always take the easy way to own your first car by consulting reliable finance companies in Singapore to find out more about their vehicle finance solutions.
2. Car model and functions
The car model is one important consideration when it comes to choosing a new car. Different car models have different features. For instance, Japanese cars such as Toyota are renowned for being the most value-for-money, whereas continental cars such as Volvo boast higher performance and superior engineering.
As a first-time car buyer, it is best to not restrict yourself solely to one brand. Instead, you should make a list of a few brands or models you would like to purchase from based on your needs and lifestyle. While a two-door convertible might elevate your social status, it might not be the most convenient vehicle when it comes to ferrying your parents or children. You can also list down the specifications or features you desire in your new car such as a spacious boot or blindspot monitoring, to help you make a better and more informed decision. Having a list helps with budgeting as it enables you to determine how much money you should set aside. If you are working with a tighter budget, you should stick to more affordable brands.
3. Deciding between a new or used car
Aside from the make and model, you also need to choose between a new or used car. This is an important decision to make as it can have a big impact on your finances for the next few years.
One main advantage of buying a new car is the warranty (that usually includes free car servicing), ultimately providing you with coverage for both the interior and exterior. Furthermore, new cars require very few repairs, allowing you to focus on maintenance. Some dealers may also offer vehicle financing solutions or new car loans that you can take to finance your vehicle. Another advantage is that new cars tend to be equipped with the latest technology such as lower emissions and better fuel consumption.
Even though new cars may come with state-of-the-art technology, they depreciate faster than a used car. The moment you drive the unit away from the dealership, your vehicle is worth a few thousand dollars less than the price you have paid for it. Also, new cars have a longer waiting period of four to six months (this is dependent on your dealer), while the waiting time for a used car is much shorter. Most buyers of used cars are able to get the vehicle once the transfer of ownership has been completed.
The biggest advantage of buying a used car is that you are paying less compared to buying a newer version of the same model. Besides, a used car depreciates at a slower rate since the first owner has already absorbed most of the loss. Since you are not losing money on depreciation, you may be able to take up a used car loan or finance options and enjoy good interest rates and deals. Check out the amount of loan you are entitled to take up in Singapore with our used car loan calculator!
In addition, used cars tend to have lower insurance rates since older car parts are more inexpensive to replace.
One major disadvantage of used cars is that they usually come with wear and tear, making new cars more appealing to many. It is best to always check the car thoroughly before making your purchase to ensure that you do not spend too much money on repairs or replacement parts.
There are two methods you can opt for to buy a new car. The first one is to purchase from an authorised dealer, while the second option is to purchase from parallel importers. Authorised Distributors (AD) refer to companies that have won exclusive distribution rights for a particular car brand from the manufacturer of the vehicle. On the other hand, parallel importers (PI) purchase vehicles directly from the manufacturers and import them to Singapore. Unlike ADs, parallel importers do not have a limitation on the brand of vehicles they can carry, thus they can provide prospective buyers more choices at affordable rates.
The services offered across different parallel importers may differ, hence it is recommended that you do thorough research before selecting one to buy from to avoid being shortchanged.
The primary rule of buying a car is to always take it out for a test drive. This ensures that features such as horsepower, fuel consumption, engine capacity, etc. are ideal for you, and can meet your needs. Aside from checking the comfort of the interior, you should also take a friend with you to have an extra pair of eyes to watch out for things that you might overlook. Do not just test drive one vehicle; instead, if you have shortlisted vehicles within your budget, you should test drive them all to find the best possible option.
Most car buyers spend a long time deliberating on the ‘right’ car and do not give much thought to their car loan. But fret not, because we’re here to give you a crash course on car loans and vehicle finance solutions.
Before buying a new car, you should first work out your sums to ensure that you have sufficient cash on hand to make the down payment. Next, you assess the loan amount that you would like to apply for as this will determine your monthly instalment. It is best to ensure that the monthly amount is something that you are comfortable with paying in the long run.
The maximum loan amount is dependent on several factors.
Open Market Valuation (OMV)
Based on the latest and most current regulations, car buyers are entitled to a loan of up to 70% of the car purchase price if the OMV is lower than or equal to S$20,000. You can only take up a loan of up to 60% of the car purchase price if the OMV is higher than S$20,000.
This table only indicates the maximum loan amount, the actual amount that banks or finance companies in Singapore may be lower since they need to assess your monthly income, credit scores, and other financial commitments. A better credit score will entitle you to a higher loan amount not exceeding the maximum stated.
What is the maximum loan period?
The maximum loan period is 7 years. However, as with all loans, you will need to pay more interest with a longer tenure. Hence, as long as the monthly instalments are manageable, you should pick the shortest loan tenure that you can handle.
Used car loans have varied maximum loan periods. As a result of the COE implementation, car loans are only for the first 10 years of a vehicle’s lifespan. The maximum loan period for used cars is determined by the amount of time left in the COE since registration of the vehicle. Hence, if you are buying a 6-year old car, the maximum loan tenure that you are entitled to is four years – since the car has only four years left. It might be difficult to obtain a car loan if you are buying a car that is more than ten years old from its initial registration date. However, some finance companies do offer exceptions, so it is good to do some market research beforehand.
What are your car financing options?
There are three types of loans you can apply to finance your car:
1. In-house financing
Whether you are buying a new or used car, in-house financing refers to loans provided directly from the dealership. It is the most common, and the option with the least resistance. Car dealers tend to offer attractive financing solutions such as higher loan amounts and lower interest rates.
In addition to in-house financing, car dealers also work with local banks such as DBS, OCBC, Maybank, etc. to offer attractive rates, and a seamless as well as hassle-free loan experience. Some dealers may offer incentives or give you free goodies like service vouchers to sweeten the deal.
3. Balloon scheme financing
Balloon scheme financing refers to a loan that you take out on the car’s price without the Preferential Additional Registration Fee (PARF), but at a higher interest rate. The loan amount is then subsequently divided into monthly instalments that you have to pay.
This scheme is particularly attractive to first-time car buyers.
Even though balloon schemes have higher interest rates than other loans, they exclude the PARF amount in the overall loan, resulting in a lower loan quantum. This allows you to pay less each month so that you can have more financial freedom.
However, there is a catch. At the end of the loan, you need to pay the full sum of the PARF. Before we go on, here is what PARF is: PARF applies to cars that are still using the original COE and is less than 10 years old. So, you are entitled to a PARF rebate when you deregister a car that is less than 10 years old, allowing you to recover the initial ARF paid when you first registered the car.
Under the balloon scheme financing, if your car loan is S$50,000, and your car’s minimum PARF is S$10,000, you will only need to pay instalments based on S$40,000. Since you are not paying for the full value of the car inclusive of the minimum PARF rebate portion, the total amount has to be repaid at the end of the loan.
Thus, this finance scheme is more worth it and ideal if you plan to use your car for the rest of its life, or if you are disciplined enough to save and pay the PARF amount at the end of the loan.
Can foreigners buy a car in Singapore?
As an expat in Singapore, owning a car may be something that has crossed your mind multiple times, especially since many countries in the world are currently in lockdown, and you have to stay here for a prolonged period of time. While Singapore’s public transport system is highly efficient, nothing beats the convenience of having your own car. Foreigners who are not staying in Singapore in the long run should buy a used car since it comes with more benefits – affordable, has a lower depreciation rate, and is immediately accessible.
As an expat looking to own a car in Singapore, you are required to have a valid local or international license. International licenses are valid for use in Singapore for 12 months, and you have to convert to a local license after one year. In addition to licenses, it is also mandatory to have motor or car insurance before driving on the roads.
Since the costs of owning a car are high, expats can take up car loans to finance their vehicle. The same requirement for loans such as maximum loan amount and interest rates still apply.
How do you apply for a car loan?
After doing thorough research, you can choose to take on a new car loan with your dealer or go directly to the bank. It is best to submit an online loan application or make an appointment beforehand, should you choose to go directly to the bank.
Bring along the following documents, if you have, for a hassle-free loan application experience:
- Vehicle sales agreement
- Proof of income such as payslips, income tax, or CPF statement
- Proof of existing financial commitments like housing loans
- Employment details with the name of your employer and monthly income
If you need more advice or help with car loans, you can always reach out to a trusted finance company like Swee Seng Credit to guide you through the process.
Part IV: Conclusion
Upon reaching the tenth year mark of registration, your vehicle will automatically be deregistered unless you pay for COE renewal. There are two options that you can choose when it comes to COE renewal.
You can pay either 50% of the Prevailing Quota Premium (PQP) and have your COE renewed for 5 years, or 100% of the PQP for a 10-year renewal. The PQP takes the average COE prices across three months and thus is constantly changing. As the amount to renew your COE is high, there are COE renewal financing options available, such as a COE renewal loan. Should you choose to renew your COE for five years, you will no longer be eligible to renew it any further and are required to deregister your vehicle once it expires. A 10-year COE renewal allows you to continuously renew your COE even after it expires. One tip to deciding between the two is: If you do not wish to have a huge financial commitment or do not see yourself driving the same vehicle for another 10 years, then a 5-year renewal is sufficient.
In-house COE renewal car loans
Generally, in-house COE renewal loans have a simpler process however they come with higher interest rates when compared to banks. These interest rates are dependent on your loan amount and tenure. Sometimes, in-house COE renewal car loans have promotional interest rates to encourage customers to take up a loan with them.
Besides the simple process, in-house loans tend to have a faster approval rate than banks since some of them do not require credit checks. However, even if they do carry out credit assessments, most of the time these do not affect your chances of getting your COE renewal loan approved. Some companies in Singapore act as middlemen providing COE renewal loan services with varying interest rates. Since they are the middlemen, they may charge higher interest rates as compared to you going directly to the finance company. Thus, it is ideal to always do thorough research before taking up a loan.
Bank COE renewal loans
Banks offer some of the best COE renewal loans as their interest rates are typically lower and more attractive compared to in-house loans. While bank COE renewal loans are attractive, not many people are able to secure a loan as a result of bad credit scores. Banks often assess your credit to check on your financial capacity, and this process usually takes a few working days.
Aside from attractive interest rates, banks are also transparent and offer added security. However, banks do not accept direct COE renewal loan applications, and you usually have to go through agents like a finance company offering the same interest rates as the bank.
Now that we have shared the tips for buying a new car in Singapore and loan plans, you are now all set to purchase your first dream car. Remember to always do thorough research to find out more about the loan packages offered by dealers and banks before making your purchase.
Swee Seng Credit gives you more financial freedom through vehicle finance solutions like used car loans, COE renewal financing, and more! All of our finance solutions are tailored to your individual needs and circumstances, taking you a step closer to owning your dream car.