It is well known that purchasing a car in Singapore is an expensive process due to the high density of vehicles on our roads and supplementary fees that car owners must pay.
Owning a car may be more of a want than a necessity for many people as a result of this as well as the accessibility and cost of public transport.
Undoubtedly, some people might view owning a car as a necessity if their employment required them to travel frequently during the course of the day, if they had children, or if they had elderly parents who were unable to care for themselves.
Budgeting is essential if you are considering purchasing a car, regardless of whether having a car is a need or a want for your lifestyle.
Depending on the circumstances influencing your purchase—such as whether you have a family to transport or whether the newest car model is simply too alluring to pass up—how you plan and prioritise it will change.
What factors determine a car's initial purchase price?
The government has taken steps over the years to regulate traffic congestion at acceptable levels due to the large number of vehicles in land-scarce Singapore.
Examples include additional charges and taxes as well as the legendary Certificate of Entitlement (COE), which must be obtained prior to purchasing a vehicle.
Certificate of Entitlement (COE)
The procedure for purchasing a brand-new car in Singapore requires you to bid for a COE. Twice a month, open bidding exercises are held.
The prices are then decided when the bidding process is complete based on the demand as well as the vehicle limit allotted by the Land Transport Authority (LTA).
You can register a vehicle in the appropriate category for a term of ten years after obtaining a COE through the bidding process.
The A and B COE categories are the ones that apply when purchasing a car for personal use.
While Category A and B COEs cannot be transferred and must be bid for a specific vehicle registration plate, Category E COEs are transferable for up to three months.
Given the high pricing for COE, it should come as no surprise that it accounts for a considerable portion of your total purchase price. At the time of writing, the COE2 (1st bidding of January 2023) is $80,000 for Category A cars, and $105,501 for Category B.
Open Market Value (OMV)
The OMV indicates the vehicle’s open market value (OMV), which is the cost of the car itself. It establishes the maximum loan amount you are qualified for and is also used to figure out some of the fees and charges assessed.
Fee for registration and additional registration (ARF)
As of this writing, the cost to register a new vehicle is $350 plus a $27.82 processing fee.
When you register a vehicle in Singapore, you must pay a tax called the ARF. It is determined using a portion of your car’s OMV.
GST (Goods & Services Tax) and excise duty
Imported products into Singapore are subject to an excise duty, in this case 20% of the OMV. On the OMV, there is an 8% GST fee. GST in Singapore will increase to 9% on January 1, 2024.
Vehicle Emissions Scheme (VES)
The VES seeks to persuade motorists to purchase more environmentally friendly vehicles. You can either receive a rebate or pay a premium based on a set of standard testing mechanics to measure the pollutants your car emits. This sum is put towards the ARF.
The entire cost of the vehicle less the authorised loan amount will be the sum you must pay as the initial downpayment.
In addition to the charges already mentioned, the dealer from whom you buy your car will add a markup to the price of the vehicle as part of its profit margin and to defray its own expenses. Depending on whether you’re buying a cheap or expensive car, this can often range between 10% and 50%.
Next, what?
It’s time to celebrate the achievement once you’ve determined how much you can afford to spend, which bank to borrow from, how you’re financing your purchase, and subsequently what car you can (afford to) buy given your current financial condition.
Is it true though?
This may only be the first in a long list of things to think about.
Owning a car entails ongoing expenses for its maintenance and operation.
Non-negotiable operating expenses
Some operating expenses cannot be negotiated. These are expenses that come along with owning an automobile.
Road tax must be paid on a regular basis, every six or twelve months, depending on the size of your car’s engine.
A legitimate driver’s insurance policy is legally required, and the annual premiums, which range from $700 to $2,000 depending on the insurer and the driver profile, vary.
To make sure your automobile is operating properly and is safe to drive, you should send it in for routine maintenance. Typically, this is done every six months or more frequently depending on mileage. Whether it is serviced by a dealership or a third-party workshop can affect the cost of the maintenance.
Don’t forget to factor in the cost of your monthly loan payment and interest if you borrowed money to buy your car.
Flexible operating expenses
Depending on your driving style and schedule, you may have more control over other operating expenses like parking fees and ERP. But over the past ten years, the prices have unfortunately been rising substantially.
Hidden operating expenses
Aside from all of the anticipated costs, using a car may also incur hidden expenses. These include possible fixes in the unfortunate case of an accident or if the car becomes scratched.
Yes, additional expenses could include a speeding fine, a parking ticket, or worse, depending on the intentionality or not of the offense.
Creating a car budget
As you can see, even if you have enough money on hand to cover the upfront expenditures of owning a car, you still need to think about your particular financial situation when determining whether you can responsibly handle the ongoing expenses.
Making time to perform a brief financial health check is a smart idea. Do you have money set away for emergencies?
If you are self-employed or have dependents, this should equal up to 12 months’ worth of living expenses. It should be at least 3 to 6 months’ worth. Before thinking about purchasing a car, you need also make sure that your fundamental insurance requirements are met.
Regarding your monthly cash flow, it’s crucial to make sure you can save at least 10% of your gross monthly salary each month while still having money for things like food, transportation, and bill payments.
Overall, owning a car is convenient, especially if you need to drive dependents around during the day or cross the island for work. Nevertheless, whether the benefits exceed the drawbacks overall depends on how much you value the car in connection to your personal preferences and routines.
In addition to the obvious drawbacks of owning a car, like the high initial and ongoing costs, there are also unspoken advantages to not driving. Not driving would surely save money given the speed of global warming.
Using a private rental or public transportation will also relieve you of the stress of probable traffic congestion and parking concerns, and may even allow you to rest and unwind while being driven around.
Cars are ultimately depreciating assets. If your lifestyle permits it, you can decide to divert the money you would normally spend on your automobile toward other future goals by investing it instead.
Ready to begin?
To get a financial health check and learn how to properly organize your funds, call a financial advisor now.