Thinking of buying a car? Brake first
If sitting comfortably in an air-conditioned car, cruising on the road and avoiding the crowded MRT trains during peak hours appeal to you, then getting a car may be a priority to you.
Many of us are aware that a car is somewhat more affordable for our overseas counterparts. In contrast, owning a car in Singapore is likely to create a hole in our pockets and should be avoided. Yet the crowded expressways and traffic jams here tell a different story. It appears that many Singaporeans have compelling reasons to still pursue that expensive dream.
So, if you are shopping for a new set of wheels, be sure to go beyond considering the aesthetics of the model, colour, size, and specifications. Before you even “cruise” that far, it is prudent to consider the financial aspects, as a car can be a costly commitment.
Here’s what you need to consider before buying those fancy wheels.
Should you even buy a car?
The advantages of buying a car in Singapore despite the high price is obvious. They include the ease of travelling without having to fight for space in our crowded public transport, faster commute and the convenience, especially when travelling with family, kids or pets.
The major downside comes down to the cost and it’s not just the upfront cost we are talking about. Given the high price of owning a car here, it’s also about servicing the car loan, its depreciation, as well as other recurring costs such as fuel, maintenance, car insurance and road tax.
Most of us would take a loan to fund our car purchase. A car loan is a type of secured loan, where the car is the collateral that the lender can repossess in the event you default on repayments.
Taking a car loan also means it can impact your chances of getting a home loan since it affects your Total Debt Servicing Ratio (TDSR)The TDSR limits the amount borrowers can spend on debt repayments to 60% of their gross monthly income
Cost of getting a car in Singapore
There are various costs involved when working out the estimated total cost of buying a car. However, we can work out an estimate for each category so that you can have an overall idea of how much a car would cost you:
As you can see, buying a new car can easily cost you close to $100,000, just for its upfront cost!
Is buying a used car a better option?
If buying a car is simply for the convenience of getting from point A to B, buying a second-hand car can be a cheaper alternative. Here are some considerations:
• Pricing and depreciation
A used car is cheaper than a new car. In terms of depreciation, the first owner would have already paid the depreciation for you (in a way). Even if you purchase a one-year old used car, it will still be way cheaper than the original price of a new car.
• Value for money
By opting for a used car, you will be able to purchase your dream car that may be out of your budget if you were to buy it brand new. In fact, some used cars are as good as a new car if they are well maintained.
• Shorter waiting time
The process of buying a new car can be quite tedious - from bidding for a COE to waiting for its arrival. It could take months, especially if the car model is out of stock.
Getting a second-hand car can provide more options and you will likely get it within a shorter period.
• Certified pre-owned programs
There are many car dealers with certified pre-owned (CPO) programs that can check the car thoroughly ensuring that it is in good condition. CPO vehicles are typically new, have low mileage and come with a dealer’s warranty. Such cars can make a good alternative to new cars.
From a personal finance perspective, it seems hard to justify buying a car here. With Singapore’s small size and its reliable public transportation infrastructure, owning a car may seem to be luxurious.
Besides, purchasing a car quite often requires taking a car loan, which can become a financial liability. This may affect your ability to get a home loan as the maximum amount you can borrow is capped by the TDSR when you apply for a mortgage. This means that the monthly repayment on all your debts like home loan, car loan etc cannot exceed 60%of your monthly income.
For example, if you earn $6,000 per month, your monthly total debt repayments cannot exceed $3,600. If you have a car loan that pushes you to the TDSR cap, your home loan may be rejected. If you go ahead with buying the house, you will have to fork out a larger down payment which affects your overall cash flows. The alternative to give up your dream home.
As with all other spend and purchases, the decision boils down to understanding your priorities and whether owning a car sits high on that list. If not, what is pencilled it for the car purchase can be used to kickstart your investing journey or saving for your first home.
Ready to start?
Speak to the Wealth Planning Manager today for a financial health check and how you can better plan your finances.
Alternatively, check out NAV Planner to analyse your real-time financial health. The best part is, it’s fuss-free – we automatically work out your money flows and provide money tips.