For some of us, owning a car is considered a luxury. For others, it is a need. No wonder almost 1 in 10 Singaporeans own a car based on the annual vehicle statistics released by Land Transport Authority (LTA) in 2017. For the car owner hopefuls who are thinking about getting a car, here are five things you need to consider when you think about getting a new car for yourself or for your family’s use like how a seasoned pro will.
1. Why are you buying a car?
It might be a weird question to ask, but trust us, this can save your wallet from going bust. Car owners, especially first-time owners, have the tendency to splurge on your car. Even if you do not really need a Mercedes or BMW, you might still sign up for one just because of how sleek it looks. However, you need to ask yourself whether you really need such an expensive car.
If your car is there to fulfil a functional need (i.e. fetch you and your family around) rather than a social need, why purchase a car that is difficult to upkeep?
2. What should you choose: New car vs second-hand car
When Singaporeans think about buying a car, most of us think about buying a NEW car. But buying a car doesn’t necessarily have to mean buying a new car. You can also opt for a second-hand car. As a rule of thumb, used cars are generally 10-30% percent cheaper for second-hand cars that are 2-3 years old. The price decreases even more for second-hand cars that are even older.
3. Choosing who to buy your new car from: Authorised dealer vs parallel importer
Now, let’s say you have decided to get a new car. There’s another choice that you have to make. You need to choose between an authorised dealer or a parallel importer.
As the name suggests, authorised dealers are assigned by the original manufacturer to sell their cars. For example, Tan Chong Motors is the authorised dealer of Nissan cars in Southeast Asia. Authorised dealers are usually more reliable due to the stringent standards upheld by the original manufacturers. They also tend to have better after-sales support like warranty, free servicing and trustworthy workshops. You don’t have to worry about having to order replacement parts before you can repair your car.
Parallel import refers to cars that are imported from another country without the permission of the intellectual property owner. However, do not be confused between parallel import and counterfeit products. In short, parallel importers are re-sellers of cars that they bought from another country. Unlike authorised dealers, parallel importers can set their prices in any way that they like. You can even get your car for S$8-10k lower, albeit without the official warranty and risk running into replacement issues.
4. How much cash can you afford?
Since 2016, regulation on car loans has restricted car owners to loan up to 70% of the car price. Car owners will have 7 years to make the repayment. This means that you will need to fork out at least 30% of your car price in cold hard cash. This will be significant if you are looking to buy a luxury car where the upfront payment can be more than S$50k.
5. Price vs total cost of ownership
One thing to always keep in mind when considering the cost of owning a car is to include the maintenance and fuel cost. For example, frequent maintenance and repairs should be expected when you purchase a second-hand car. Thus, even if second-hand cars might be cheaper on paper, they can unknowingly cost you even more in the long run.
Therefore, you shouldn’t just look at the upfront cost of owning a car. You need to consider the overall cost of ownership of a new or second-hand car, particularly if the price is a major consideration factor.
6. Shopping for the best car loans
Everyone knows where and what to look out for when shopping for a new car. Most of us will go to different dealers, test out different cars and try to get the best car deal. However, most of us neglect the most important aspect of car shopping: Loan shopping. Just like car shopping, looking around for the best car loan deal is also vital because a car loan is a huge commitment. You want to get the best interest rate and terms and conditions for your car loan deal.
Sometimes, car dealers will throw in special deals or waivers if you take up a car loan through them. Although it’s a bit more of a hassle, it’ll be prudent to still shop around and see if taking a different loan will result in a lower overall cost.
7. Avoiding car loan pitfalls at all cost
One of the pitfalls that seasoned pros will warn you from falling into is mistaking flat interest rate for the effective interest rate. Since car buyers generally purchase cars after they have purchased their first home, home loans become their most trusted reference point. After all, they are both loans, so they should work in the same way, don’t they? Not quite.
While the mortgage payment for home loans reduce over the years, car loans generally do not. This means that you will need to make sure that your car loan repayment is affordable over the seven-year loan tenure. Don’t under budget your loan thinking that you will have lesser loan payments to make in the later years.
8. Time your COE entry
Buying a car is like shopping for every other thing. In order to get the best bargain, you need to be patient.
One of the greatest cost driver for car ownership is the Certificate of Entitlement (COE). It is a piece of paper that allows you to own and drive your car on the roads of Singapore. Based on July round 2 COE bidding released by Land Transport Authority (LTA), a Cat A COE costs you only S$25,000. This is the lowest in the last eight years, despite LTA freezing vehicle growth. Since then, the price of a Cat A COE has rebounded to $32,699.
But if history has taught us anything, it is this: A lower COE comes to those who are willing and able to wait. Low COE prices always come at a surprise when no one expects it, just like the $2 COE for Cat A in November 2008. For car owners who are able to suppress their demand and wait a little longer, you will find yourself in a good position to get a real bargain. You might even find yourself buying a COE at a price lower than the March 2010 (round 1 tender) low of S$20,802.