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Should You Renew Your COE Or Buy A New Car

A brand new car might be more expensive, but not as much as you expect.

 

Here is a transport related question that is uniquely Singapore. If you currently own a car that is reaching the end of its Certificate Of Entitlement (COE), should you consider renewing the COE for a further 10 years, or buy a new car instead?

How COE Renewal Works

Before a car can be driven in Singapore, car owners first need to bid for a COE. The COE allows the car to be driven in Singapore for 10 years.

At the end of the 10-year COE period, vehicle owners may choose to deregister their vehicles or extend their COEs for another 10 years. If owners want to extend their COE for another 10 years, they do not need to bid for a new COE. Rather, they pay the Prevailing Quota Premium (PQP).

The PQP is determined by using the moving average of the COE prices in the last 3 months. For example, if the average COE prices over the past 3 months were $50,000, $45,000 and $43,000, then the PQP would be $46,000.

For June 2016, the PQP for Category A COE is $46,454.

Cost Difference Between Getting A New Car And Renewing Your COE

It is natural to quickly presume that renewing your COE would be much cheaper than getting a new car. For the most part, that is usually true. But just how much are the cost differences that we are talking about?

Let us take a look using two examples.

Mazda 3 (Registered 31 July 2007)

Estimated PARF Rebate At The End Of COE When Car Is Deregistered: $8,408

Buying A New Car

Source: SGCarMart

Assuming a car owner uses up the 10-year COE before deregistering it, the PARF rebate (i.e. paper value) for a Mazda 3 would be about $8,400. If we assume that the car has no body value left on it (i.e. dealer do not pay you any extra money to deregister), that will be the amount received.

Based on current prices, a brand new Mazda 3 would cost $95,000. If you subtract the amount you get from the PARF rebate, you pay about $86,600 for a brand new car with a fresh 10-year COE.

Editors Note (Updated 7 June 2016): 

Our initial calculation did not take into consideration the future PARF value car owners would receive back if they bought a new car, and then deregister it 10 years later.

Having illustrated that an owner would pay about $86,600 for a new Mazda 3 after the PARF rebate, the actual cost would further reduce to $78,000 once we take into account the next PARF rebate.

Renewing Your COE

If you were to renew your COE, you would be paying $46,454 for a new COE. In other words, you would be paying about $42,000 more to get a new car, instead of renewing an older model.

Editors Note (Updated 7 June 2016): 

The difference would be about $31,500 once we take into account the PARF rebate for the next car

$42,000 may seem costly, but the actual cost would be lower than than that once you take into consideration the higher repair costs and maintenance incurred due to up keeping an older car.

Repair and maintenance cost can vary significantly depending on the condition of the existing car. One can easily expect to pay about $15,000 or more over the next 10 years for repairs. In addition, maintenance and fuel efficiency will also be more expensive. Even if we assume this is as little as $40 per month more, you can expect to pay $5000 more over a 10-year period.

In total, we can easily expect to pay at least $20,000 or more for up keeping an older car.

New Mazda 3 Old Mazda 3
Cost $95,000
(Less) PARF Rebate $8,400
COE $46,000
Estimated Additional Repair & Maintenance Cost Over 10 Years $20,000
Estimated Final Cost $86,600 $66,000

 

The difference in cost would be about $20,000 over a 10-year period.

Editors Note: The difference is actually about $11,500 once you take into consideration the double effect of the PARF rebate

Audi A6 (Registered Jan 2007)

Estimated PARF Rebate At The End Of COE When Car Is Deregistered: $27,155

Buying A New Audi A6

Source: SGCarMart

Based on current prices, a new Audi A6 would cost $211,000. After the inclusion of PARF rebate, a new Audi A6 would cost about $184,000.

In contrast, extending the COE for an Audi A6 would cost about $48,000. Repair cost would be tricky. One hand, a well maintained German car should be expected to have fewer problems in the long run. That being said, a problem with a major component such as the transmission could easily cost more than $5,000 to fix.

New Audi A6 Old Mazda 3
Cost $211,000
(Less) PARF Rebate $27,000
COE $48,000
Estimated Additional Repair & Maintenance Cost Over 10 Years $20,000
Estimated Final Cost $184,000 $68,000

 

The difference in cost would be about $116,000 over a 10-year period.

Editors Note: The difference in cost is about $157,000 once we take into consideration the effect of the PARF rebate from the new car

When Should You Choose To Renew?

Generally speaking, it would be more much worthwhile to extend the COE for more expensive and established car brands such as Audi, Mercedes & BMW. As a proportion to the overall price of the car, the COE for these cars could represent about 25% of the total price.

In contrast, for more affordable brands such as Mazda, Kia or Mitsubishi, the COE could easily represent 50% of the price of the car. Paying more money to get a new car (i.e. $42,000 more for a Mazda 3) could save owners thousands of dollars in repair cost over the next 10 years.

Ultimately, car owners should have the best gauge of the condition of their current car. If you are already spending quite a fair bit of money fixing parts that are failing, chances are you will be spending a lot more money in the next 10 years after you extend your car’s COE.

Editors Note (Updated 7 June 2016): 

Paying more to repair an old car is expected. Aside from the wear and tear for older parts that need to be replaced, it is also possible that older car models may not have spare parts for repair. It has to be imported from overseas, adding to the cost.

Road tax also increases for vehicles that are older than 10 years. According to a LTA document“the surcharges increases at a rate of 10% per annum of the basic road tax amount payable, up to a maximum of 50% per annum.”

In such instances, buying a new car might only cost a little more, in contrast to spending a bomb on repairs in the future.

If your car is giving you hardly any problems, and have a relatively low mileage to go along with it, extending the COE, particularly for more expensive car models, might be the better and much cheaper option.

Editors Note (Updated 7 June 2016): 

However, we’d like to clarify that just because a model is expensive does not always mean it is better, or cheaper to maintain. Expensive car models usually cost more to repair. Mileage is also a better gauge on how old a car truly is. All this should ultimately factor in to whether a car owner should extend his COE, or buy a new car.

Read Also: Why Are Cars In Singapore So Expensive?

Top Image: SGCarMart

Editors Note (Updated 7 June 2016): 

Following feedback from readers, we have published an additional article to further explain in details other factors to be considered when deciding between extending the COE or buying a new car. We strongly recommend for you to read our follow up article, please click here

 

 

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