Transportation

Is It Better to Lease or Buy a Car in Singapore?

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Ryan Ong

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We have very few drug problems in Singapore. I suspect it’s because cars are so expensive, even Colombian coke dealers need a second mortgage to buy one. As that’s kind of a problem, we’re left with either public transport, or car leasing. And with big companies like Daimler now making the offer, it’s something worth considering:

What is Car Leasing?

There are now two different levels of this.

The first is something we’ve had for a while: It’s just car rental, but you’re renting for a really long time (like, two years or something). I’m not going to cover that, because it’s quite well known. You can browse those options here.

I want to talk about the whole new level of this, which is leasing right from the car company itself. Daimler Fleet Management lets you do this, as an alternative to buying a Mercedes. Likewise, companies such as BMW, Volkswagen, Porsche, etc. are all getting in on the act.

I spoke to Damien, one of the salesmen in the showroom (not his real name):

We have seen business fall by more than 68% since the loan curbs. Because buyers must have 50% down payment. I think it is a very difficult commitment. So now we offer the option to lease, so you can still afford to drive, and we also have business. I think we can both be happy.

You can use the car as if its your own, and after you’re done in three years, six years, or whatever, you can just stop and return the car. There is an initial payment, but it is much smaller than the 50% down payment. And after that the fee is monthly.

I believe in some companies it may be a bit different, theirs can be more like a buyback programme, where after certain number of years, they guarantee they will buy back the car at half price.”

 

Taxi driver
“How about you sit behind and I drive? Can I get a discount THEN?”

 

I called a few car companies for numbers, but the prices are quite variable; as are the leasing features. But this is what most have in common:

  • Leasing costs for mid-range cars are around $1,600 to $1,800 per month
  • Leasing costs for higher end cars are around $3,000 to $3,600 per month
  • Typical leasing period is from four to eight years
  • Most companies cover road tax and insurance (ask though)
  • Most companies service the vehicle as if you bought from them

Some of the luxury car companies had different schemes. One of them (no names, but it’s famous for sports cars and the look of its headlights) boasted extremely low monthly costs (under $800). But there was a hefty down payment of $235,000.

(Yes, I know $235k will straight up buy you a small car. But this was a flashy sports car. One that you normally can’t afford at all).

Mercedes also has a trade-in scheme. This lets you keep your plate number, and the No Claim Discount (NCD) from your current insurer.

 

How Much More Expensive is Leasing?

 

budget sign post
“Good news. We’ll soon be putting up sign posts for non-ERP routes.”

 

I compared it to the price of buying a mid-range car, which will come to around $150,000 (based on current COE prices).

That’s a down payment of $75,000. At a car loan rate of 1.88% per annum, for five years, monthly repayments are about $1,370+.

Leasing costs tend to be about $1,600 to $1,800, for mid-range models. So overall, you would spend approxtimately $200 to $500 more per month by leasing.

Figuring the the down payment is tricky, since it varies so much. I had quotes of as low as $20,000, to over $50,000. Damien mentions that “the industry average has yet to be well established, because this is a new concept.” You’ll have to ask and shop around the hard way for now.

 

Damien identifies a few conditions in which leasing is better:

  • You need the car urgently and can’t afford the down payment
  • You are not staying in Singapore for long
  • You intend to stop driving in a few years
  • You want to indulge in luxury models

 

1. You Need the Car Urgently and Can’t Afford the Down Payment

 

Horses
“Don’t worry, I’ll find options based on your budget. So, do you live near big grass patches?”

 

Right now, the take-up rate for car leasing is low. Eh, why is that Damien?

Rumour has it the COE system or the car loan restrictions will be changed, maybe in 2014″, Damien says,” If it turns out that no loan curbs are on second hand cars, or COE prices fall until cars are affordable, then those who lease now will be ‘stuck’ paying higher prices for the term of the lease”.

Because of this, Damien says those who go for lease deals now are:

People who urgently need a car and cannot afford the down payment. Students who cannot get a room on campus, business men who need to get around. If a car is a necessity, leasing makes it possible to afford one.

If it’s not a necessity…I think I also will wait to see what happens next year.”

 

2. You Are Not Staying in Singapore for Long

 

Airplane
“For the last time sir, we don’t care how much the COE cost. Now stop accelerating at the passenger door.”

 

Has there been a high take-up rate among expats?

No, which surprises me,” Damien says, “It’s cheaper (leasing from the car companies) than leasing from a rental agency. So maybe the word has not gotten out, that’s all.

For expats who are staying three years or less, buying is not cost effective. For what they want to tie up such a huge amount for the down payment (of a car loan)? Just to drive a few years?

It’s good for me if they buy of course. But I also don’t want to be so mercenary; I think more of them should consider leasing. Instead of tying up cash in the car, go and use it for a bigger house or something.”

 

3. You Intend to Stop Driving in a Few Years

Are you nearing your 60’s, nearing retirement, etc.?

You might want to ponder how long you intend to drive for. If you are only going to be on the road for another four or five years, it might be better to lease a car. There are better places to invest your money, especially if your income stream is slowing.

(Unless you’re pondering splitting with your children, getting something for the family in general, etc. In which case, follow us on Facebook. We have some tips on that.)

 

4. You Want to Indulge in Luxury Models

 

Luxury car
“Excellent. Now I’ll impress them into donating to my charity.”

 

“It’s not all about being economical,” Damien assures me, “We have people in here, sometimes even as young as their 20s, who just want to be seen driving a high-end car.

If you tell them five year loan, 50% down payment, they can never afford it. But they die die also don’t want to drive something more budget friendly, so they lease a high-end model. It’s a about indulgence and prestige also.

And maybe if you are a businessman, you want to prove your ventures should be capitalized, that you’re successful…a luxury car helps as much as a nice suit, right?

 

Would you consider leasing? Comment and let us know!

Image Credits:
neajjean, tallkev, 401(k) 2013, drothamel, Christopher Neugebauer, David Villareal Fernandez

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Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.

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