If you’re like me, you only change cars once the traffic police stop you. Then the cop who pulls me over makes choking noises, while deciding to laugh or cry. Well, don’t you mock me! Cling-wrap is a perfectly good alternative to windscreens! Anyway, MoneySmart readers might wonder about the financial impact of changing cars. In this article, I look at how to time your upgrade (or downgrade, which is any time you’re buying a Proton):
"And if you buy first, we'll give you this free guide to insider trading."
1. Now is Not the Best Time
I’ll start with a straight answer: Not now. Okay? That’s April 2012, which will go down in Singapore history as “That time when everyone who could afford a car was subject to CID investigation.”
With COE bids in excess of $90,000, there’s only one good reason to buy a car this month; and it involves a gang fight, 15 stab wounds, and being too far from A&E. Anything less is insufficient reason to even look at a new car. Because the COE adds tremendous cost to the vehicle (the certificate might cost more than the car), it’s important to track the COE rates.
"I have ways of affording my car. Oh, and here's my house…it's that dumpster around the corner."
COE rates are affected by the current car quotas. Since the government intends to lower that quota in August, we can expect the prices to keep on rising, at least till 2013.
No promises, but 2013 is when the 10 year COEs from 2005 begin to expire. Back then, the car quota was a lot higher, and they were handing out COEs like door prizes. As those COEs die out, there will be more room for cars on the road. Most car owners who got their COE in 2005 will also be eager to scrap in 2013, since they want their two year rebate.
2. Your Maintenance Costs are Too High
Maybe you’ve played live action Grand Theft Auto once too often. Or maybe the mechanic at the plant had one too many beers the night before. Whatever the case, some cars cost more to maintain than they’re worth.
Singaporeans hesitate to change cars just because of maintenance issues. After all, cars suffer rapid depreciation, and COE bidding is about as enjoyable as open heart surgery. The sale of the old car won’t cover the cost of the new one. But do the maths, and you might find keeping a lousy car costs you more.
"Sure, I can fix it. But you'll have to pay the museum for the right parts."
Here’s an easy way to decide:
- Total the monthly cost of keeping your car (fuel, ERP, repayments, maintenance, etc.)
- Total the cost of your car maintenance over one year, then find the average monthly cost of maintenance.
- Compare the averaged monthly cost of maintenance to the monthly cost of keeping your car.
As a general rule, your vehicle is counter-productive if the maintenance cost equals or exceeds 20% of the total monthly cost.
If you’re self-employed, and rely on your car for income, you should also count the days when your vehicle is unavailable. Include your income for the day as part of the maintenance cost.
3. The Five Year Mark
Five is a magic number, because of the PARF rebate. Right up to year five, the PARF rebate remains at a steady 75%. Beyond that, every year reduces the rebate amount by another 5%. Likewise, note that cars depreciate most heavily within the first three years.
All this suggests that, if you want to change your car, don’t take your time. The longer you wait, the more expensive it will be. But of course, there are other factors involved. If COE prices are too high for your taste, for example, you may have no choice but to wait. In which case, you can aim for…
"Yeah, that's a five year old car alright…back in 1895 it was."
4. The Eight Year Mark
You want to quickly get your COE rebate, before it expires. This rebate is based on the amount of “unused time” on your COE. So if you have your car scrapped at eight years, you get paid two years worth of your COE.
By coincidence, eight years is also when most cars start to wear down. Car manufacturers like to claim new vehicles last much longer than old ones, but I believe that as much as I do Ris Low’s condom advice. Car manufacturers make the vehicles last longer so the public will buy fewer cars? Yeah, sure.
Anyway, after eight years you’ll be driving something that would look better on The Flintstones. Cash in, grab the rebate, and change cars. There’s little benefit to waiting the full 10 years.
"You want my 8 year old car? I'll trade it to you for cab fare."
5. You Have No Upcoming Loans
Look three months ahead. Are you going to need any kind of loan? If your housing loan is already approved, and you don’t see any other loans you’ll need, go ahead and change cars.
Otherwise, it’s inadvisable get a car loan just before another major loan (e.g. home loan). It might not prevent you getting another loan, but it might affect the amount you can borrow. Getting a new car could mean your bank will only finance 60 – 70% of your house, instead of the usual 80%.
While it’s not common, a bank might also refuse to give you a home loan until your car payment is settled.
"We decided to extend you a loan you can afford. You just spent it on that coffee."
Are you looking to change cars? Comment and tell us your worries!
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