So, you’ve scrimped and saved, avoided splurging wherever possible and made the best financial decisions over the past couple of years. Congratulations, and now you’re going to invest all that money into… what? A car? In Singapore? Are you insane? … Oh, it’s a second-hand car? Actually… that’s not a bad idea.
To be sure, there’s nothing wrong with buying a new car. More power to people who can afford buying the most expensive item in Singapore next to property, we say. But here’s the thing – buying used cars in Singapore can cost you 50% to 70% less than a new car. That’s significant, regardless of the contributing factors. Here’s what you need to know before you buy a second-hand car.
1. How “used” is the used car?
Determining a car’s usage goes way beyond the car’s backseat, residual smell and general cleanliness. Those things you can spot and immediately decide if you’re willing to pay for the used car. I’m talking about things you can’t immediately notice, such as – how well maintained is the car’s engine?
One easy way would be to look at the used car’s mileage – If a car has seen more of the world than you have, you’ll probably want to think twice (or three times) about buying the car. But that doesn’t mean that an extremely low mileage is preferred either – not only is it seen as a premium by some sellers, but lack of use can lead to its own share of engine problems.
Make sure you get a car with an appropriate mileage for its age – about 15,000 to 18,000 km per year.
A related point is to find out how many previous owners a car has had. When cars seldom get to be more than 10 years old in Singapore, having 3 or more owners might be too many, and may imply problems with the car.
2. Is this a PARF car or a COE car?
This is a very important question to consider because it informs you how much you can get back in “scrap value”.
Put simply, a PARF car is a car that is less than 10 years old. This means that when the car nears its 10th birthday, you can recover at least 50% of the PARF value if you choose to deregister it. That means you get some money back! And it’s a pretty significant amount too.
On the other hand, a COE car is a car that is more than 10 years old. It’s called a COE car because someone renewed the car’s COE in order to keep using it. They either paid for a new 10-year COE, or paid half that amount for a 5-year COE.
While COE cars seem cheaper than PARF cars, it’s only because when you deregister your car, you only get the unused portion of your COE back, nothing more, nothing less. In that sense, COE cars are practically worthless. And let’s not forget that as older cars, COE cars may need more repair work if they’ve not been well-maintained in the past.
Read the difference in detail: Should You Buy a COE or PARF Car in Singapore? What’s the Difference?
3. Don’t forget to check when road tax is due
Road tax is paid annually, which means you might sometimes get a bargain if the seller had already paid road tax for the year before you buy the car off them.
Most of the time, though, road tax becomes a hidden, unexpected cost that creeps up on you. And if your car is more than 10 years old (i.e. a COE car), then that you must pay up to 50% more road tax for older cars.
Always find out how much road tax your car will be charged and when the renewal due date is before buying that secondhand car.
4. Even though you’re buying a second-hand car, you have to get your own car insurance!
If you’re new to driving and are getting your second-hand car from a direct seller, you might not realise that you are obliged to get your own car insurance. Technically, you’re not allowed to buy over the seller’s insurance. This means that you might be left unaware of your options in choosing the best car insurance for you.
Since there are so many competing insurance providers in Singapore, it pays to compare car insurance policies before making your decision. And even though you’re not obliged to stick with an insurer after a year, for the sake of convenience, it’s best to choose the right policy from Day 1. Or Day 0, even. You can compare car insurance policies easily with our Car Insurance Wizard.
One thing you’ll want to look out for (other than the premium, of course) is the excess you agree to pay. Say you want to make a claim, this amount decides the maximum amount you must pay out of your own pocket before the insurance company chips in.
Say the claim is for $2,000 and your excess is $500. You will need to pay $500 and the insurance company pays $1,500. But if the claim is only for $400? You will need to pay the entire $400 claim yourself, since it’s below the $500 excess amount.
Another thing to watch out for is the fine print – I know this seems like an obvious statement when it comes to insurance agents, but it’s particularly important when it comes to car insurance. Find out what your insurer’s policy on car modifications is – will they still accept claims if the car has modifications? This is really important when buying second-hand cars, because it’s possible that a seller may forget to mention that they’ve changed the tyre rims and as a result, you may have problems claiming insurance later.
Financing your secondhand car
Car loans in Singapore allow you to borrow up to 70% of the car’s Open Market Value, also known as OMV. The maximum loan tenure is 7 years. You may incur higher interest rates for used cars, or face a shorter loan tenure.
The three types of car loans are: fixed interest rate financing, in-housing financing and ballon scheme financing (only for PARF cars).
See how much you will be paying each month using MoneySmart’s car loan calculator. If you want to understand further, read Car Loan in Singapore – Guide to Financing Your Car in Singapore.
Do you have any more advice about buying a second-hand car? Share your wisdom with us.