# Car Expense: How to Know How Much You Pay?

Car Loan

Car ownership in Singapore is a significant expense. If you want to save some of this substantial expense, then you got to read this.

So how do you calculate your budget and expense on the car if you are working out your finances on how much to spend on the car?

There is one important number to look at to know what you will be spending on the car, not just simply the monthly loan repayment figure. Of course, monthly repayment still a factor to consider on whether it will fit into your expenses nicely, but if you only want one quick indicator to look at when it comes to car expense, then you have to look at:

## Yearly Depreciation

This is the one factor which shows you how much you spend on your car before the other necessary incidentals, which come along with car ownership.

So, how do you calculate this figure?

For a brand new car:

Yearly depreciation = (Car purchase price – PARF) / no. of years owned

Assuming a car with a purchase price of \$100,000 and a \$8,000 PARF (which is the paper value of the car when you scrap it at the end of the COE lifespan of 10 years – commonly called scrap value), the yearly depreciation works out to be:

Yearly depreciation = (\$100,000 – \$8,000) / 10 = \$9,200

This is approximately the selling price of a general Japanese sedan for most families at the moment, and a yearly depreciation of about \$9k is typical as of current date. This is the basic figure to work with and a number you want to know.

Note that the yearly depreciation figure is affected by the number of years you own the vehicle – usually owning it all the way to 10 years yields the lowest depreciation as selling it early usually means more of a loss. Your final real yearly depreciation can be calculated at the point in time you sell the car. If you sell it before COE expiry the formula is:

Yearly depreciation = (Car purchase price – Price sold) / no. of years you owned the car

## Full Yearly Car Expense

To the basic yearly depreciation figure calculated above, you then add the incidentals that all car owners have to incur as part of ownership, such as fuel, taxes, insurance, inspections, repairs and maintenance. To this figure you should also add yearly interest charges if you took our a car loan to purchase the car. Example: if you took a \$30,000 loan at 2.78% per year, the then interest charges work out to be \$(30,000 x 2.78%) = \$834.

Taxes are easily known and they are usually fixed, except for when the government gives some rebates. Insurance is more or less an “about there” figure, tends to vary slightly, year to year.

However, the other figures such as fuel, maintenance and repairs are highly variable and should be excluded from your figure.

Why? Bear in mind that some years you may cover more mileage in your car than others, so including these in the calculation just makes it confusing.

## So How Is Your Yearly Depreciation Figure Useful?

This is a useful figure for a lot of customers we meet who are considering COE renewal for their car reaching 10 years of age.

Why? Because at this point in time, they are also faced with a choice of collecting the scrap value from LTA and using it as down-payment for the next car.

Would renewing COE mean you have a lower yearly depreciation or a relatively high depreciation while still having to face more maintenance bills after COE renewal (compared to a new car)?

To do meaningful analysis, you have to account for the PARF value of your car approaching end of COE lifespan to make a reasonable comparison – here’s how:

For a COE renewed car:

Yearly depreciation = (COE PQP Payment Price + PARF Forfeited) / no. of years renewed

As you can see from the above, the higher the PARF you forfeit, the higher your depreciation figure is going to be.

This is the reason why some cars owners are indecisive when it comes to renewing the COE, like owners of continental cars from BMW, Mercedes or Audi which typically have pretty high PARF values. We have also come across Odyssey Absolute and Subaru Exiga with \$20+k which make it a tough choice.

But for a more typical car such as a Mitsubishi Lancer or Toyota Corolla Altis the figures look something like this:

Yearly depreciation = \$(29,670 + 7,800) / 10 = \$3,747

The above renewal COE PQP price is for 10 years renewal payable for November 2018 Cat A – this figure changes from month to month, so do find out your renewal price in the month of your expiry or the month you wish to pay when you calculate the figure for your own car. Note: You can pay any earlier month, before COE expiry.

A \$3k to \$5k depreciation is very reasonable indeed. It’s hard to beat.

But what happens since you need to pay increased road tax after 10 years? A 10% extra surcharge is added per year after the car is 10 years old, till a maximum of 150% is reached. This is only one of a few higher costs you will pay for a 10 year or older car.

However, it is likely that including that extra tax charge, plus additional maintenance, that comes with an older vehicle, you are still not likely to exceed the \$5.5k mark in yearly depreciation for a COE renewed Japanese or Korean sedan over the years.

## A Solid Figure to Work With To Decide Between Car Renewal and Buying New!

With the two depreciation figures in hand calculated from above, it’s now much easier to decide between buying a new car and renewing the old one.

It is very likely that the picture looks this way:

New Car Yearly Depreciation > Renewed Car Yearly Depreciation

I.e.: New Car Yearly Depreciation (greater than) Renewed Car Yearly Depreciation

Maybe to the tune of about \$5k per year difference between owning a new car and an old car. Strange to note, a used 2nd hand car is likely to have higher depreciation than a new car if you buy new and assume a 10 year ownership period.

This \$5000 difference is what we like to refer to as the “luxury price” – the price you pay for peace of mind having a new car warranty and fewer car faults, and the luxury of owning a new car which your neighbours may envy.

Is this difference worth the \$5000 or whichever figure you have calculated for the model you are looking at compared to renewing your old one? We help you figure out the difference in payment, but that is a decision only you can make – the choice of luxury versus budget.