Car - your worst investment (in Singapore)

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Last updated: 05 Aug 2003

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Want to buy a car? Think again!

Published in the The New Paper on 18 February 2003

ASK DR MONEY:
A car -- your worst investment

By LARRY HAVERKAMP ([email protected])

	Expensive	Expensive	Moderate	Cheap	Cheap
TOTAL VEHICLE COSTS	New Car (1.6 litre)	Used Car (5-year old)	Delivery van (1.6 litre)	Motorcycle (200 cc)	Public transport
1) Vehicle Cost	$75,000	$40,000	$40,000	$4,000	-
2) Interest Cost	19,500	11,200	10,400	1,500	-
3) Petrol	18,200	18,200	18,200	7,800	-
4) Maintenance & Repair	12,000	15,600	6,000	1,200	-
5) Road Tax	11,000	9,000	4,000	800	-
6) Insurance	10,000	10,000	10,000	5,000	-
7) Parking	9,000	9,000	9,000	1,800	-
8) E.R.P.	2,500	2,500	2,500	1,000	-
9) Resale/Scrap value	-17,000	-8,000	-4,000	-500	-
10) 5-year C.O.E.	-	16,000	-	-	-
TOTAL (over 10 years)	140,200	121,500	96,100	22,600	25,000

Notes:
1) Vehicle cost includes COE
2) Interest (flat rate basis): new car 2.6% 10 years. used car 2.8% 5 years. van 2.6% 10 years. motorcycle 5% 4 years. 100% financing for new car. 90% financing for used car van and motorcycle. Costs include opportunity cost of 2.8% (flat rate) for non-financed portion (i.e. for the 6 of 10 years for motorcycle and 5 of 10 years for used car)
3) Petrol: cars and vans $35/week. Motorcycle $15/week
4) Maintenance: new car $100/month.used car $130/month. van $50/month. motorcycle $10/month
5) Road tax: car $1,100/year. van $400/year. motorcycle $80.year.
6) Insurance: cars and van $1,000/year. motorcycle $500/year
7) Parking: cars and van $65/month (HDB) + $10/month (public); motorcycle $15/month (public)
8) ERP: cars and van $5/week, motorcycle $2/week
9) Resale or scrap: higher or resale or scrap value in year 10 and year 15 for used car
10) Public transportation assumes MRT, bus and taxi: MRT and bus (12 trips/week at $1.40/trip) $16.80/week or $875/year. Taxi (5 trips/week at $6/trip) $30/week or $1,560/year. Total $875+1560 = $2,435/year. Rounded up to $2,500/year x 10 years = $25,000

Q: Should I take advantage of these 100 per cent financing deals and buy a car?

A: A car costs much more than you may think.

Here are five transportation choices ranked from the worst deal to the best.

New Car: It's expensive.

A $75,000 new car will ultimately cost you $140,200 over the 10-year life of the car.

That's nearly double the $75,000 purchase price.

After buying the car, your biggest costs are interest, petrol and maintenance.

Used Car: A $75,000 new car becomes a $40,000 used car in five years.

Over the next 10 years, a used car will cost you $121,500.

That's three times the $40,000 purchase price.

The biggest surprise is that a used car costs $121,500 v $140,200 for a new car.

That means you save only 13 per cent by driving a car that is five years older.

It's hardly worth it.

Why are the costs for new and used cars nearly the same?

It's partly because of high repair costs for a used car.

But mostly it's because COE and taxes are a car's biggest costs, and these are charged at a constant rate through the 10-year life of a car.

Delivery Van: At a 10-year cost of $96,100, a van isn't a bad deal.

Over its 10-year life, a new van will cost 70 per cent the cost of a new car.

But vans aren't for everyone.

If there are just two of you, it works well.

If there are more than two persons, forget it.

A van only has room for two.

From July 1 last year, LTA requires that you have a registered business in order to purchase a van. It costs about $115 to register a business plus a $25 yearly renewal fee.

You can register on-line at www.rcb.gov.sg then go to BizFile.

Motorcycle: The 10-year cost of a new 200cc motorcycle is $22,600.

That comes to just 16 per cent the cost of a new car.

A motorcycle provides good, cheap transportation and it's fun.

If you are going to buy some wheels, I recommend a motorcycle.

There are just two drawbacks. First, sometimes it rains.

Solution: get a raincoat.

Second, people who have never ridden a motorcycle will tell you it is very dangerous.

Solution: Drive carefully.

MRT and Bus: Since we have the best public transport system in the world, it is a shame not to use it.

You can take six round-trip bus and MRT trips each week, plus five taxi trips per week and it will cost you $25,000 over 10 years.

In my opinion, this is the best deal available.

It easily beats buying a car.

While it is slightly more expensive than a motorcycle, you may find it more convenient.

Some financing tips

Tip 1: Banks will reject applications for 100 per cent financing if your income is too low.

Your monthly income must be at least three times the monthly loan instalment, and four times if you have other debts.

Tip 2: You may pay more than you think because banks have a peculiar way of calculating interest rates for car loans.

They charge a 'flat rate' of about 2.6 per cent. But the amount you end up paying - called the 'effective rate' - is nearly double, about 5.2 per cent.

Tip 3: Early repayment for car loans is also tricky. You pay mostly interest in the early years.

This results in an indirect and substantial penalty for early repayment of your car loan.