The $100,000 Question

Singaporeans who are contemplating a new car must be wondering if it is worthwhile to buy now. This is especially so considering the sky-high Certificate of Entitlement (COE). Despite the recent drop in the prices of COE, the entitlement to drive a new car on Singapore roads still remain very expensive. Buyers need to fork out at least around $100,000 for a new car. This is by no means a small sum, even for a big-ticket item. So let’s examine what are the factors we should consider before damaging our pockets.

Buy for the right reason
Most Singaporeans, especially those conservative and thrifty ones, consider cars as sheer liabilities, at least in Singapore context. They argued that public transport is excellent in Singapore and hence there is no need for a car. But I beg to differ. For some people, having a car can be an asset to their job or business.

For example if you are a housing agent, you definitely need a car to meet clients at different time and places. In addition, some jobs, especially those sales and marketing ones, also require candidates to possess private transport so as to meet clients.

On the other hand, some Singaporeans buy car because of family needs. Imagine if you have two school going kids and wife. Having a car enables you to have that little bit more of face time with your family and provides flexibility of sending/picking them to work or school. Henceforth, buying a car may not be a flawed financial decision, but that is if you buy for the right reason.

Plan your purchase
After convincing yourself that having a car is essential for you, the next course of action is of course to do a budget based on your monthly income. The easy way would be to do a back-of-the-envelope calculation of what would be the monthly expenses and maintenance costs incurred.

Besides the monthly car loan, there is a need to also consider insurance, fuel, season parking, toll charges, road tax, grooming and servicing costs. Sound scary? You bet.

Owning a car is always an expensive affair in Singapore and if you are not careful about it, you can mess up your personal finance royally. So do not just consider the car loan when you calculate the expenses. Make sure you factor in the above items.

Based on my experience, for a young driver below the age of 30, insurance costs and fuel usually make up the bulk of the monthly expenses. Annual insurance premiums for young drivers usually cost more than S$2000 and the monthly fuel usually costs about $300, depending on the car model.

Consider pre-owned cars
In my opinion, it is just not worthwhile to buy a new car now. If you need to buy a car, the wise choice would be to purchase a pre-owned car. Most pre-owned cars in Singapore are actually quite well maintained and in tip-top shape. In fact, many of my foreign friends asked me how come most of the cars on Singapore roads are so new compared to their countries. I told them that COE only allows the owner to drive their cars for 10 years. Beyond that, there is an option to renew it but only for another 5 years (I stand corrected!).

A lot of Singaporeans feel that COE prices will only keep rising as a result of government policies. I always point out to them that in the 90s, COE prices were more than $100,000 (in those days, $100,000 is freaking huge amount of money) but crashed to $2 in the 2008 recession. So the moral of the story is that there is always a cycle and you need not be afraid of missing the opportunity to buy.

I personally think that it is not justifiable to spend foolish amount of money on a new car which can only be driven for 10 years. That is why I purchased a pre-owned Nissan for S$40,000 with a 5 year COE validity last year. I been driving it for half a year now and it is still in good condition. To me, it is definitely a good buy.

Hope you find the above information useful.

Magically yours,

SG Wealth Builder