Having a car is pretty useful, especially if you have a family that you need to drive around. However, because of the cost of a brand-new car in Singapore, some Singaporeans prefer to go for a second-hand car. It is cheaper and still achieves the same purpose. If you are serious about getting a second-hand car, then here is a MUST-TICK checklist of six things you need to know before one.
6 things to know to get the best second-hand car deal
- Are you buying a PARF or COE car?
- Older second-hand cars give you more value for your money
- Second-hand car loans are more expensive
- What is the condition of the second-hand car?
- Finding the right car at the right marketplace
- You need to get a new car insurance
1. Are you buying a PARF or COE car?
There are two types of second-hand car that you can own: A PARF car or a COE car. PARF stands for Preferential Additional Registration Fee, which refers to cars that are still using their original COE. COE car, on the other hand, refers to cars that are more than 10 years old and have renewed their COE. The renewal can be a 5-year or 10-year renewal depending on the choice of the previous owner.
If you are buying a second-hand PARF car, you are entitled to a PARF rebate when your vehicle hits 10 years old. The PARF rebate is usually a rebate of the open market value (OMV), i.e. original cost of production. Even though yours is a second-hand car, you can still derive some value out of your car when the COE expires. This means that the cost of ownership of your second-hand car is reduced by the PARF rebate amount.
2. Older second-hand cars give you more value for your money
Since cars are depreciating assets, they depreciate on a year-on-year basis. In other words, there is a direct correlation between the number of years of ownership and the car’s depreciated value.
However, the rate of depreciation differs from year to year. The value of cars depreciates the most in the first three years. In particular, cars depreciate the most in the first year. Cars generally depreciate by around 20% in the first year, followed by 10% in the subsequent few years. Older second-hand cars can help you to avoid the first few depreciations. It definitely sounds like a better and more economical decision for a tool that serves the same purpose.
3. Second-hand car loans are more expensive
Unlike buying a new car, the loan you can take to buy a second-hand car isn’t as straightforward. Right now, car loans have a maximum loan quantum of 70% Loan-To-Value (LTV) ratio and loan tenure of seven years.
Open Market Value (OMV)
Maximum finance amount
|≤S$20,000||70% of the purchase price or valuation price, whichever is lower|
|≥S$20,000||60% of the purchase price or valuation price, whichever is lower|
For second-hand cars, the loan quantum will be determined by the adjusted OMV based on the car’s age and the LTV. The loan tenure for second-hand cars is also capped by the shortened COE lifespan of the car. Given the shorter lifespan and lower loan quantum, second-hand car loans tend to be more expensive than loans for new cars.
4. What is the condition of the second-hand car?
Second-hand cars can come in various forms, shapes and conditions. Second-hand cars that look amazing on the outside might not truly reflect the condition of its interior components. Thus, you need to do a few checks to determine whether the condition of the car is still suitable for your needs.
- Start by observing the car from the exterior. Check whether the car is lopsided or dented in any way. These could be tell-tale signs that the car has been through an accident in the past. While it looks ok for now, there could be underlying damages that can be costly for you in the future. The defects can also be a good bargaining chip for you to lower your cost of ownership.
- Next, you need to check the interior of the car. More importantly, you need to check the condition of the car’s engine compartment. Get your hands dirty and lift up the car bonnet to check if there are any oil leaks or signs of past oil leaks.
- Take a seat at the driver seat and check out the mileage of the car to see how much the car has been used. While you are in the driver seat, turn on the air condition and test if the air conditioning is cold.
- You also need to pay attention to sounds of the car during acceleration, braking, turning and even the transmission shift.
If you aren’t a self-proclaimed car expert, then you might want to leave the job of checking the car to a car-savvy friend. You can even request for the seller to allow you to do an independent inspection at a trusted workshop for a small fee.
5. Finding the right car at the right marketplace
Traditionally, buying second-hand cars had to be done at second-hand car dealers. But now, you can find used cars anywhere and everywhere. You can even find them on your mobile phone. The boom of online marketplaces has helped to facilitate the buying and selling directly between private owners. Some useful marketplaces that you can browse through second-hand cars include Carro.sg, DBS’ car marketplace, SGCarMart and Driven.
The absence of a middleman (i.e. second-hand car dealer) can help you find a better deal that fits your budget by eliminating the middleman commission. However, you need to be careful when dealing with private car owners, especially since buying second-hand cars from them don’t come with a warranty.
6. You need to get a new car insurance
Even though the previous owner might have his/her own insurance for the car that hasn’t expired, he/she can’t transfer it to you. After all, you are not allowed to buy over the previous owners’ car insurance. This means that you have to buy your own car insurance. Here are some smart ways to help you save on your car insurance in Singapore.
When getting a new car insurance, it is better that you don’t blindly auto-renew your car insurance. If you choose to auto-renew your car insurance, it robs you of the chance to shop around for bargains. This is especially if you have had a little bad history of accidents with your previous insurer. However, if you have chalked up a good reputation with your previous insurer and built up your no-claim discount (NCD), then it might be worth renewing your car insurance. But the decision should be left to you, not to your insurer.