- Published: Friday, 08 April 2016 13:55
Second-hand, used, pre-owned... whatever you call it, it'll be cheaper than a new car, right? That’s not the whole picture, though. Here's some first-hand advice on how to avoid second-hand pain!
SINGAPORE — It’s time. You’ve saved up enough to buy yourself, or your family, a set of wheels. Time to hit all the showrooms and gather brochures, then enjoy the new car smell and increased swag. Okay maybe not the swag.
First off, read our simple guide to perplexing car acronyms endemic to Singapore. You’ll feel enlightened after, but the next question is, just the same as if for any major, grin-inducing purchase - should I buy new or used?
The answer is simple: If you want to pay a smaller sticker price, buy a used car. There’s no getting around that fact — like for like, used cars cost less and sometimes can be found in very good condition.
But here are three things you need to think about before you sign on the dotted line for a car, be it new or pre-owned.
Firstly — In appreciation of depreciation...
Here's the mind-blowing fact that every Singapore car buyer needs to know: sometimes a second-hand car can actually be more expensive than the same car new! We'll let that sink in for a bit...
How does that work? In a word, Depreciation.
Because of the Certificates of Entitlement (COE) system that keeps Singapore from turning into a giant pot of jam (durian jam, presumably), we own our cars for 10-year blocks of time. There's also a PARF rebate system that guarantess you a certain amount of cash back if you de-register your car within those 10 years.
Accordingly, there is a definite, calculatable amount you expend per annum as a car owner, and that’s the Depreciation. It’s a separate issue from the actual value of the car alone, which also lessens over time, i.e. normal depreciation of a normal consumer good.
Naturally, the Singaporean system is one in which you know exactly how much you’ll get back at the end of it at a minimum — not something you can say about selling a second hand car abroad.
So, Singaporean Depreciation is calculated by the total cost of the car minus the PARF rebate and remaining COE value (the money you get back at the end of ownership if you scrap the car) divided by the years of ownership. If you own a car there’s a handy online calculator for PARF.
What’s this gotta do with new or used cars? Well, in past years with crazy COE prices, that means some used cars might have a higher depreciation than new cars.
For example, the Platonic Ideal of a normal car, the Toyota Corolla Altis, costs $107,888 with COE in March 2016. Given its PARF rebate value at the end of 10 years, it has an annual depreciation of $9,900.
The same model (or nameplate at least — the latest Corolla is a totally new car) from 2011 now costs about $67,000 second-hand, but has a depreciation of nearly $11,100 per year.
Which means that by the time 2021 rolled around, you would have lost about $5,000 more on the second-hand car.
So let's get this straight: you can buy a new car that's fresh off the boat, with a shiny new engine under the bonnet and seats that no one has broken wind on or anything... and pay less every year for it than for used car.
There's your classic no-brainer. But as they say on TV, that’s not all...
Secondly — Used and New costs differ hugely
Between pre-owned and new cars, that is. For example, both new and used cars face the same MAS loan restrictions but interests rates differ between them and used car loans typically have higher interest rates. Local banks quote between 2.28 to 2.78 percent for new and 2.98 percent for used car loans.
For a $60,000 loan over five years, that would make the second-hand car's loan $2,100 more expensive, or $6,840 versus $8,940.
There are other costs too: Road tax for older cars is higher (if they are more than 10 years old), but insurance premiums are typically lower for older cars because they’re worth less if they’re totalled. The key thing to note is that if you’re buying used, you need to be extra careful of other costs which might add up and define a point beyond which it’s better to buy new.
Thirdly — Warranties and Maintenance
A second hand car might be a good buy if it’s less than five years old. Why? Assuming it’s purchased from and serviced by an authorised dealer, if anything goes pear shaped, you’ll have an official manufacturer’s warranty to help you out.
It's important to avoid a lemon (even kids know that), but just think of a comprehensive warranty as sugar that can take away the sour taste.
Suppose a car came with a five-year warranty when it was new, and you're buying that car after three years — that leaves you two years of worry-free ownership. If mechanical problems come up, they'll be fixed because warranties are transferable.
If on the other hand, the second hand car in question doesn’t have an official service record, or wasn’t from a proper dealer to begin with, then you open yourself up to the risk of paying for mechnical trouble. That might turn out to be expensive.
Though big mechanical failures are very rare as most modern cars are very reliable, it’s a risk one has to be aware of.
But wait, there’s more!
I know we said three points but the last is too important to leave out. There’s a third option which has many of the pros of buying used, but minus the cons.
Authorised pre-owned dealerships can give you a good balance between the two — that's when you buy a second-hand car from a trustworthy and properly set-up dealership, usually a new car dealer.
It can cost slightly more than an ‘in the wild’ second hand car, but lots of the major risks are mitigated.
One example is Toyota Certified Pre-Owned (TCPO) cars. A pre-owned car bought from TCPO has a fully valid five-year unlimited mileage warranty (counting from the date of original purchase). Each car also undergoes a quality assurance inspection, includes a year of free servicing and has 24-hour roadside assistance.
Now that you know, you can go ahead and do your happy buy-a-new-car homework and have little risk of being taken for a noob ride like the one below.
But whether you eventually go down the new or second-hand route, just try to keep one thing in mind: buying and owning a car should be fun, and finding the right set of wheels is all about inviting joy to your life.