Buying A New Car For The First Time – On Finance, COE and More

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.

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:

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.

• ARF

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

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. 

• OMV

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.

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.

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. 

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.

There are three types of loans you can apply to finance your car:

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.

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.

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.

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.

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. 

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.