Sure, we’ve heard all the theories – a car is an unnecessary luxury, it’s cheaper to use Grab all the time, cars have massive depreciation, etc. But wait till you have to come home with a crying baby and three children, and both your arms are loaded with five kilos of groceries, and you’re 15 minutes late for an appointment. Fact is, some of us will need cars – here’s how to make sure you’re financially ready for the commitment:
Step 1: Can you afford to pay for the driver’s license?
The enrolment fees for driving schools are around $100.
The cost of the Basic Theory Test (BTT) and Final Theory Test (FTT) are $6.50 each. After that, you’ll need to buy a Provisional Driving License (PDL) for $25; the PDL will allow you to drive the car out for practical lessons, under an instructor.
The practical lessons are the most expensive, costing around $68 to $77 per lesson. You’ll usually need about 20 to 25 lessons, so prepare to pay around $1,500 to $2,000 overall.
Finally, the practical driving test is $33, and the rental of the car for the test is around $200.
After you’ve passed, the driver’s license itself costs $50.
Note that you need to pass both the theory and practical tests within one year of enrolment. Otherwise, you’ll need to pay for a six-month extension, which between $48 to $53. Bukit Batok Driving Centre, however, can give you a one-month extension for only $8.03.
These are the typical fees for driving schools; for private driving instructors, the costs will vary. We suggest you compare to their fees to the schools, and decide which is cheaper.
Regardless, the overall cost of getting a driver’s license tends to be in the range of $2,000 to $2,200, after paying the miscellaneous costs. This assumes you’re able to pass on the first go; further lessons and tests will raise the costs.
Step 2: Do you know how to work out the total cost of the car?
Your total car costs will include:
- The sale price of the car itself, plus the Certificate of Entitlement (COE)
- The Registration Fee and Additional Registration Fee
- Car insurance
- Road tax
- Maintenance costs, petrol, and parking
a) The sale price of the car itself, plus the COE
The COE is based on bids, so the price will fluctuate. You can either bid for the COE yourself, get your car dealer to do it for you, or simply buy a car that already comes with the COE.
At the time of writing, the COE is around $38,000 for Category A cars (engines of 1,600cc or below), and $37,989 for Category B cars (engines above 1,600 cc). The COE is added to the price of the car, along with all its relevant import costs.
In general, a family sedan – such as a Toyota Altis 1.6A, will come to a cost of around $100,000 to $110,000.
b) The Registration Fee and Additional Registration Fee
The Registration Fee (RF) is $140. The Additional Registration Fee (ARF) is based on the Open Market Value (OMV) of your car. The OMV is the assessed value of your car.
In general, most family cars will have an OMV of between $19,000 to $20,00.
The ARF rate is 100 per cent of the first $20,000 of your car’s OMV, 140 per cent of the next $30,000, and 180 per cent for any amount above $50,000.
Practically speaking, a family car will have an ARF of $20,000.
c) Car insurance
Typical car insurance premiums range from $1,200 to $1,400 per year. This will vary largely based on your driving history (you get a cumulative 10 per cent No Claim Discount for every accident-free year, up to 50 per cent).
AXA SmartDrive provides comprehensive car insurance at competitive rates. There’s even a third-year waiver on any excess for female drivers, and protection for your whole family in the event of a road accident.
d) Road tax
To find out your road tax, you can use the Land Transport Authority (LTA) calculator here.
For family cars, the typical cost is around $510 per annum.
e) Maintenance cost, petrol, and parking
The average Singaporean drives about 17,500 kilometres per year, based on LTA records in 2015. We can assume fuel consumption of 13 to 16 kilometres per litre (typical of most cars), and prices of about $2.10 per litre of petrol. This gives us an estimate of around $2,826 per year spent on petrol, or $235.50 per month.
Parking costs are around $110 per month (at HDB parking rates), and you will probably need car servicing at least twice a year. We can safely assume it comes to about $250 to $300 each time, assuming nothing major goes wrong.
Overall costs = About $105,000 to buy the car itself, and about $5,236 per year to upkeep it.
Step 3: Do you understand how car loans work?
Unless you can afford to fork out the $105,000 in cash, you’ll probably need a car loan.
The maximum you can borrow is 70 per cent of the car’s price, if the OMV is $20,000 or below. If the OMV is higher than $20,000, you can only borrow up to 60 per cent. The maximum loan tenure is seven years. These are the rules stated by the Monetary Authority of Singapore.*
The typical interest rate on a car loan in Singapore is around 2.78 per cent per annum for new cars, and just over three per cent for used cars. However, you must know that car loans use flat rates rather than rest rates, when calculating the interest.
We hope you’re good at maths, because it sure comes in handy here.
A flat rate is more expensive than a rest rate. For example, say you have a car loan of $73,500. The interest rate is 2.78 per cent. This is a total interest of $2,043.30. Added to the principal of $73,500, you would need to pay a total of $75,543.30. Over a loan period of seven years, that comes to around $900 per month.
This is different from a rest rate, in which the interest repayment is based on the remaining amount. For example, as you repay your home loan (which used a rest rate), the amount you owe decreases – the subsequent month’s interest payment is based on this shrinking amount.
For simplicity’s sake, just know that a rest rate loan is about twice as high as its rest rate counterpart. This means a car loan with an interest rate of 2.78 per cent has a “real” interest rate of around 5.56 per cent.
It’s not as cheap as the numbers make it seem!
*Commercial vehicles are not subject to the same loan restrictions.
Step 4: Do you intend to buy a house?
If you want to apply for a home loan, your maximum monthly repayments – inclusive of the car loan - are capped at 60 per cent of your monthly income. For example, if you earn $5,000 per month, your monthly repayments, including your car loan, cannot exceed $3,000 per month.
Assuming you already pay $800 a month for your car, your home loan repayments won’t be able to exceed $2,200 per month. This can force you to make a bigger down payment on your house, or to buy a smaller house.
We strongly suggest you buy a house before you buy a car. If your HDB loan is rejected, you can’t live in your car.
(Well, not without severe discomfort).
Step 5: If you were to lose your job, can you keep paying the car loan for at least six months?
Ensure you have an emergency fund, of six months of the projected expenses, before you make a big purchase like a car. This will give you time to get back on your feet, in the event of issues like retrenchment.
Remember that, because cars depreciate quickly, selling off the car may not be enough to cover the outstanding loan. If something forces you to sell the car shortly after buying it, for example, you could end up getting $60,000 for the used car, while your outstanding car loan is $70,000.
Step 6: Do your car loan repayments, plus your other debt obligations, add up to more than 40 per cent of your monthly income?
As a general rule, your total debt obligations shouldn’t exceed more than 40 per cent of your monthly income. Take note of this before buying a car, if you already have a home loan or outstanding personal loans and credit card debts.
If adding the car loan would take you past the 40 per cent threshold, you’re treading on thin ice. You should pay off some of your other debts, before you consider buying a car.