Get the Best Car Insurance in Singapore
Is renewing the COE on an older car worth it? If you've ever had a car reach the end of its COE, you should be no stranger to the dilemma. Granted, the answer to this will vary depending on your individual needs and priorities. Nonetheless, it is in every car owner's interest to have an understanding of the benefits and costs involved. To that end, the ValueChampion team has created the following guide to explain the various factors you should consider before you renew the COE on your car.
Below, we have compared the estimated cost over a 5 year period of buying a brand new car, buying a 3-year-old used car registered in 2014, and renewing the COE on a 10-year-old car, using the Toyota Corolla Altis 1.6 as a reference.
Cost Over 5 Years of Getting a New Car vs. Renewing COE on an Old Car
|Brand New Car||3-Year-Old Used Car||Renew 10-Year COE||Renew 5-Year COE|
|COE + Car Purchase||S$105,000||S$80,000||S$50,000||S$25,000|
|Car Loan Interest||S$6,000||S$4,800||S$0||S$0|
|Road Tax over 5 Years||S$3,710||S$3,710||S$4,830||S$4,830|
|Insurance Premium over 5 Years||S$8,756||S$8,580||S$6,612||S$6,612|
Cost of Renewing Your COE
The first thing that will cost you regardless of if you keep your 10-year-old car or buy a newer one is the Quota Premium ("QP") or Prevailing Quota Premium ("PQP") to acquire a new COE. While the price of the QP/PQP will be the same no matter what, knowing how much a new COE is likely to cost you will help you determine how much latitude you have to lay out extra funds for a newer car. For reference, the Prevailing Quota Premium for Category A vehicles has been around S$50,000 so far in 2017. If, however, you choose to renew your COE for only 5 years, you can pay half the PQP, currently around S$25,000.
Affording a New Car
One of the most important factors in your decision of whether to renew the COE on your car or scrap it and buy a newer one is how much you are willing or able to spend on a newer car. With car prices in a range of about S$100,000 to S$120,000 currently, most brand-new, middle-of-the-market cars will cost you a little more than twice as much the cost of paying the PQP to renew the COE on your older car. While much of this cost can be spread over time by taking out a car loan, you'll still need to pony up a hefty sum of at least S$40,000 for the down payment, as you can only borrow up to a maximum of 60% of the total purchasing price of the car.
Also, you should consider the extent to which your budget and spending needs can accommodate monthly installment payments to pay off the loan. Parents in the middle of paying for their children's college tuition, for example, may not welcome the introduction of more debt into their lives.
You may also consider buying a younger used car. Many Singaporeans opt to buy used cars that are about 2 to 4 years old, as the value of these cars will have dropped considerably already thanks to car value depreciation, so they can be bought for much less while being still relatively quite new. This also has its own set of downsides, however, such as shorter COE duration.
A major consideration you should keep in mind is that if you keep your car past 10 years of age, you will sacrifice your eligibility for the PARF rebate that would help to recoup the cost of the Additional Registration Fee (ARF) you paid when you registered your old car. If your car is about to turn 10 years of age, you'll be eligible PARF rebate of 50% of the ARF you paid. Thus, it is important that you regard the PARF rebate you will potentially sacrifice as one of the costs of renewing the COE on your older car.
For example, let's assume you've been driving a 2007 Toyota Corolla Altis 1.6A, which tends to have an ARF of about S$16,500 based on a sample of used cars listed for sale on SGCarMart. You would therefore stand to receive a PARF rebate of S$8,250 if you decided to scrap your old Toyota, and will lose that amount if you keep it. This is particularly important to bear in mind as your PARF rebate could be used to help defray the cost of paying the down payment on a newer car.
Finally, remember that if you do buy a newer car under the age of 10, you could stand to reap the benefits of the PARF rebate on that car as well. If you were to buy a 3-year-old 2014 used Toyota Corolla Altis 1.6A, which tend to have an ARF of about S$13,500 based on SGCarMart listings, you would also qualify for a PARF rebate of S$6,750 if you deregistered it just before it turned 10.
Maintenance and Repair Costs
As your car gets older, the cost of servicing it will increase, as more of its parts will need tuning or replacing after years of accruing mileage. How much more you stand to pay in maintenance costs will depend on a variety of factors; for example, you can expect to pay more to service a luxury car, a Continental car, a car that has accumulated a great deal of mileage, and a car that may have not been regularly maintained through the first ten years of its life. You also may find yourself confronted with the high degree of expense involved in replacing major car parts like the transmission that will costs you several thousands of dollars. Over time, if you're not careful, you could find yourself paying more in repairs than the value of your car.
On the other hand, a newer car will not incur the high maintenance costs of an older COE car, whose maintenance cost can vary significantly depending on the car's condition. Furthermore, if you buy it when it's still relatively young (up to 3 to 5 years old), it may still have a few years left on the manufacturer's warranty that will help give you some peace of mind and alleviate the cost of replacing or repairing any major car parts.
Another point you may want to keep in mind is the availability of spare parts for your vehicle. Particularly if you have a less common car or a Continental car in Singapore, you could find yourself waiting quite a while while it's in the shop awaiting the arrival of the replacement part it needs. And there may be a cost to getting yourself around while you wait, whether you end up taking public transportation, renting a car, or owing a neighbor a few favors after borrowing their car.
After you car turns 10 years old, you will be obligated to pay a additional 10% in road tax for every year that it ages, up to a maximum cap of an additional 50%. Let's go back to our example of a Toyota Corolla Altis that's about to turn 10 years old. With an engine capacity of 1598 cc, you'd be accustomed to paying S$742 a year in road tax; if you buy a newer Corolla Altis, nothing will change. But if you renew the COE on your older car, once it turns 10, you'll pay S$818 a year. When it turns 11, S$892 a year. And so on.
Common knowledge suggests that car insurance premiums are higher for older cars than younger ones. Our research found that this is not necessarily the case and actually varies in Singapore depending on the insurer and the type of cover sought. As a matter of fact, insurers tend to charge the highest premiums of relatively newer cars for comprehensive plans.
We found more variation in how insurers charge for third party only policies, with some insurers charging the highest premiums to cars over 10 years old, some insurers not changing their prices significantly, and some charging less for these older cars.
The above graphs show quotes for a Toyota Corolla Altis 1.6 at various vehicle register years for a 30-year-old male driver with 2 years' driving experience and 0% NCD.
When making the decision of whether to renew the COE on your 10-year-old car or to buy a newer one, make sure you consider more than just the upfront cost. Savings in one area may be neutralized by extra costs in another. For example, our study showed that you'd spend about S$1,000 more on average in road tax over the course of 5 years on a 10-year-old car than on a new car. Combined with potentially higher maintenance costs, this could easily negate the roughly S$2,000 you'd save on insurance premiums by buying a third party only policy with your older car. Also, keep in mind that maintenance cost can vary significantly depending on the model, make and condition of your car.
The optimal decision for you will depend on your individual circumstances and preferences. If your budget won't accommodate a large layout of cash in a down payment before your COE expires, renewing your COE might be a good idea especially if you'll need a working car before you can purchase a new car. Similarly, if you're already paying monthly installments to pay off a home loan or student loan, you may prefer not to add the burden of monthly car loan repayments. On the other hand, if you can comfortably take on a large down payment and/or a car loan, it may make more sense for you to go ahead and buy a newer, shinier car. Buying a used car may strike a nice balance between these two options while saving you money, though you should take care to ascertain its condition before you buy. If you're looking to spend as little as possible to stay on the road, opting to renew your COE for only 5 years on your old car will also afford you an opportunity to save.
*Maintenance costs for older vehicles may vary significantly depending on the make, model, mileage and condition of your vehicle.
**PARF Rebate assumes deregistration in the final year during which it may qualify for the rebate (50% of the ARF) for both your current nearly 10-year-old Toyota Corolla Altis and your new car in its final year.
***Our estimation assumes that you deregister your car as its COE is about to expire.