Public transport is something Singaporeans love to gripe about, but if you’re single and have lots of time to burn, it still makes sense to brave those unwashed armpits and sardine can MRT carriages to save money. It’s unpleasant, but convenient and cheap.
But when you’re married and possibly awaiting the arrival of a child, suddenly you feel like you’re too old for this crap. Now that you’re possibly a dual income family, maybe it’s time to buy a car to save yourself from having to brave public transport with kids in tow.
The question is, can you afford a car? Here’s what to consider.
How a car purchase will affect your home loan eligibility
Assuming you just got married, you probably have or will soon have home loan repayment to contend with. You might also be carrying other debt such as student loan debt and unpaid credit card balances.
The TDSR (Total Debt Servicing Ratio) rules indicate that banks aren’t allowed to lend you more than a certain amount for your home loan. To be specific, you’re not allowed to spend more than 60% of your total income on your various loan repayments.
That means that if you haven’t applied for a home loan yet, you want to be very careful not to overextend yourself with a car loan, as that might prevent you from borrowing the sum of money you need.
Let’s say you have a combined income of $5,000 and wish to buy a car with a loan burden of $1,000 a month. That means the maximum home loan repayments you are eligible for will be $2,000. If you didn’t buy the car, you would be able to borrow up to the point where you were making home loan repayments of $3,000.
Assuming you take up a 25-year loan, that can be the difference between buying a condo vs a 5-room HDB flat.
Whether you can afford to pay the cash portion
You can borrow a maximum of 70% of the purchase price of a car with an OMV of $20,000 or less.
For cars that have a higher OMV, you can loan a maximum of 60% of the purchase price. That’s a sizeable amount of cash that will need to be coughed up upfront.
So for a $70,000 car (with an OMV of under $20,000), you would have to cough up $21,000 in cash.
How much you can actually afford
As a married couple possibly trying to pay for your first home and also dealing with being independent and paying for your own bills, groceries, etc, that may not leave a lot of cash leftover to repay your car loans.
So you’ll have to view your car loan repayments against the backdrop of all those other financial obligations, AND your saving and retirement planning needs.
First hand vs second hand car?
Your financial burden will vary greatly depending on whether you choose to get a brand new car, or settle for a second hand one. If you opt for the latter, the age of the car and how many years are left on the COE will have a huge impact on price.
Unfortunately, COE is a huge pain in the ass for Singaporean vehicle purchasers. It’s often not the state of the car but the length of the COE that’s a more pressing concern when you are picking a car to buy.
If you’re buying a second hand car, you want to get a car that’s significantly cheaper than a brand new one, but not so old that its COE expires within five minutes of driving it home. Ideally, you’ll be able to resell the car at a decent price after a few years, and then channel the sales proceeds into a new vehicle purchase.
Assuming you intend to drive the car to death and scrap it when its COE has expired, you also want to know the scrap value.
When calculating the cost of car ownership, don’t forget to also factor in the cost of maintenance, car insurance, parking and all that fun stuff.
PARF vs COE car?
A car on its first COE is a PARF car, while one that’s had its COE renewed at least once is a COE car. What’s the difference, you ask?
The main advantage of getting a PARF car is that you will receive a PARF (Preferential Additional Registration Fee) rebate if you deregister it before it is ten years old (ie. before the COE is up for renewal). When you receive a PARF rebate, you are basically getting back a percentage of the ARF (Additional Registration Fee) that was paid on your car by the first owner. This rebate is usually quite generous, since the ARF is usually a five figure sum, and you can get back at least the 50% of the ARF even if you sell your car one day before it turns ten. On top of that, you also get a COE rebate (more below).
COE cars, on the other hand, have already had their COE renewed at least once. You no longer qualify for a PARF rebate, but you do get to take advantage of the COE rebate. For most car owners, that basically means you get the money back for the unused portion of the COE. If you deregister your car when it is 6 years old, you will get 4 years’ worth of COE back.
Based on these considerations, a PARF car usually gives you more bang for your buck when you deregister it or at the end of the COE, since you are entitled to the PARF rebate. On the downside, they are newer and usually cost more upfront compared to COE cars.
You also want to know the scrap value of your car if you plan to drive it till the end of the COE.
After doing the math, if you’re still not freaked out over the cost, you’ll want to start comparing car prices and bidding your MRT days goodbye.
Do you plan to buy a car at some point? Tell us why or why not in the comments!