There are days I wonder why so many Singaporeans still insist on owning a car despite the ridiculous cost involved in purchasing one. Naturally, on those very same days, I become late for work due to our world-class public transportation system. But is avoiding being late for work every once in a while worth the cost of buying a car? Even a second-hand car? Let’s do the math.
For illustration purposes, let’s just focus on a 5-year-old Toyota Corolla Altis 1.6A. It’s the most popular car model in Singapore, mainly because it’s built to last and ridiculously fuel efficient. You can expect to pay at least $70,000 for one that doesn’t look like it belongs in the latest Mad Max film.
In order to ensure the lowest downpayment, you want to be able to qualify for the maximum loan in terms of largest amount and longest tenure. That means your car’s Applicable Open Market Value (OMV) needs to be $20,000 or less (in order to qualify for a loan of 60% of the car price). The older the vehicle, the lower the Applicable OMV probably is, but it’s always a good idea to check.
Income requirement for the loan
To qualify for a car loan, your monthly instalment should not exceed 1/3 your monthly salary. To get the maximum loan possible of 60% of the car price, you should go for the maximum tenure of 5 years. (Do note that the maximum tenure is dependent on the number of months left on the COE, capped at 5 years.)
Assuming the car price is $70,000, the maximum loan you can get is $42,000. As an illustration, let’s assume the car loan interest is 2.8%. Over 5 years, that means a monthly instalment rate of $798. Therefore, to qualify for the loan, you need a minimum monthly income of at least $2394.
If you’re earning that much, don’t rejoice yet. There’s a lot more to worry about than just paying $798 each month.
Monthly expenditure: $798
The minimum downpayment of a car depends on the difference between the car’s price and the loan amount mentioned above. Assuming your Applicable OMV is $20,000 or less, your loan amount is 60% of the car price. That means your downpayment is 40% of the car price. You also have to pay an LTA transfer fee of $11.
Using the same example above, the car price is $70,000, so your downpayment is $28,000. The LTA transfer fee is $11. Since you have to pay your 1st month instalment at the same time with your initial payment, that’s a total of $28,809 you have to come up with as soon as you sign on the dotted line. So make sure you have that amount liquid and ready.
What? That’s excluding insurance? Now you tell me.
Amount to be paid upfront: $28,809
According to Singapore law, car insurance with 3rd party coverage is mandatory. When it comes to using a car loan to purchase a car, the financial institution you borrow from may have stricter requirements for car insurance coverage. For example, they may demand 3rd party, fire and theft car insurance, or even comprehensive policies.
How much will this insurance cost you? Well that depends you on you, really. There are several factors that determine how much you pay per year. The main factor? Whether you’ve managed to find the best car insurance for yourself. Use a comparison site to make sure you’re not paying more than you have to. Still, expect your insurance to come up to about $1,200… at least. This amount has to be paid upfront and in full, and your insurer will issue you a cover note.
Make sure the insurance policy is already in force when you purchase the vehicle and covers the full period of the vehicle’s road tax.
Amount to be paid upfront: $1,200
Speaking of road tax, make sure to check if your vehicle requires inspection prior to the renewal of your road tax. For cars that are older than 3 years, it is compulsory to have annual car inspections. Sometimes, the second hand car comes with a few months of road tax still valid. But you’re still going to have to pay it sooner or later. For the Toyota Corolla Altis mentioned earlier, since it’s a 5-year-old 1598cc car, the road tax should be $742 for a 12-month renewal.
(It’s important to note that , as announced at this year’s Budget, there will be a one-year road tax rebate for petrol vehicles from 1 August 2015 to 31 July 2016. The rebate for petrol and petrol-hybrid cars is 20%. Any excess road tax paid will automatically be offset at the next renewal.)
There, that’s all you need to worry about, right? Well, yes, assuming you’re planning to bring your new ride home and spend the rest of its short life caring for it in your carpark. What? You actually expect to drive it around? Then be prepared to spend more money.
Amount to be paid upfront: $742
When buying a second hand car, always check the mileage and how well the previous owner(s?!) maintained it. It’s probably a good idea to check the car’s maintenance log (and panic if there isn’t one!) and get a mechanic to look it over before handing over cash.
Depending on how many miles are already on the second hand car, you can probably expect to be replacing some parts. And even if you don’t have to replace any parts, you still the need to change the oil, check tyres, flush the air-con and top up brake fluid on a yearly basis.
Say your second hand car is, miraculously, in the best of conditions. You should still expect your maintenance and servicing costs to set you back by, on average, at least $360 a year. And yes, I bet some of you are laughing at that amount, because you know no second hand car is only going to cost you that little each year.
Monthly expenditure: $30
Whether a new or second hand car, it’s going to need petrol. Even if you’re not paying top dollar for Shell V-Power, your petrol bill’s still going to come to about $200 a month. Okay, fine, if you use the best credit card for petrol you might be able to knock that down to about $180 a month.
Monthly expenditure: $180
So, what’s the total damage when buying a second hand car?
You’ve seen the numbers, let’s do the math. First we find out how much we need to save each month even before we can think of buying a second hand car. Are you ready for this?
Amount you have to pay upfront when buying a second hand car:
What if you don’t already have $30,751 in cash? That means you will need to start saving $2,562.58 a month for a year. Oh, wait, you don’t even take home that much salary a month. Okay, how about we say $1,025.03 each month for the next 2.5 years before you can think of affording a second hand car (at today’s prices).
Total monthly expenditure after buying a car:
|Car loan instalment||$798|
So, now that you’ve managed to save $1,025.03 a month for 2.5 years, you should have no problem paying at least $1008 each month for the next 5 years till your second hand car is fully paid off. And scrapped. Just imagine – you need to set aside more than $1,000 each month for 7.5 years just for the convenience of a second hand car that you’ll use for only 5 years.
Only in Singapore.
Are you surprised by this number? Do you think there are ways to further reduce the costs of owning a second hand car? Share them with us!