You will be able to calculate yearly depreciation for a new or used car.
Arjun's colleague Wen Jie bought a new car five years ago and sold it last month. When Arjun asked how much the car had cost him, Wen Jie added up his instalments, insurance and petrol. He never mentioned the biggest number: the car he bought for S$120,000 sold for S$60,000. Half of what he paid had simply gone, at about S$1,000 a month, and no bill ever showed it.
That loss is depreciation, and for most cars in Singapore it is the largest cost of ownership. This lesson shows you how to calculate it, so you can compare cars on what they really cost to own rather than on what they cost to buy. All figures in this lesson are made up for the example.
Depreciation is the fall in a car's value while you own it. To turn it into a yearly figure, take the price you paid, subtract the value left when you sell or deregister the car, and divide by the number of years you owned it.
For Wen Jie, that is S$120,000 minus S$60,000, divided by five years, which is S$12,000 a year, or S$1,000 a month.
The formula is rough on purpose. It ignores the timing of the loss, which is usually steeper in some years than others, and it treats the end value as known when you buy. For planning, it is accurate enough, and it lets you compare very different cars on one number.
In most countries, a car's value at the end depends mainly on its condition and mileage. In Singapore, much of it comes from two rebates you may receive when a car is deregistered, which is why cars here lose value in a pattern you can largely predict.
The first is the PARF rebate. When a car is registered, the owner pays an Additional Registration Fee, or ARF, worked out from the car's Open Market Value. If the car is deregistered before it reaches ten years, part of that ARF comes back as a rebate under the Preferential Additional Registration Fee scheme. The share depends on the car's age when it is deregistered, and it shrinks as the car gets older.
The second is the COE rebate. If you deregister before the COE runs out, you get back a share of the COE price you paid, in proportion to the time left on it.
LTA sets the rules for both and publishes how they are worked out. Check them there, along with the ARF itself. Dealers and listing sites often show a car's deregistration value, which is the total of these rebates if it were deregistered today. That figure forms much of the value left for an older car, and it falls steadily as the car ages.
A new car costs the most upfront but spreads its depreciation over many years. A used car costs less upfront, but with fewer years of COE left, its depreciation is spread over a shorter period.
Arjun compares two cars with made-up figures.
The first is new at S$120,000. Like Wen Jie's, he expects to sell it after five years for about S$60,000. Depreciation is S$60,000 over five years, S$12,000 a year.
The second is a five-year-old car with five years of COE left, listed at S$55,000. The listing gives its deregistration value today as S$10,000, but that figure shrinks every year. By the time the COE runs out, the car will be ten years old, past the age for a PARF rebate, with no COE left to rebate. Arjun plans to drive it to the end, so he assumes nothing is left. Depreciation is the full S$55,000 over five years, S$11,000 a year.
The used car costs S$65,000 less to buy. Per year of ownership, the gap is S$1,000. That is still a saving, but far smaller than the price tags suggest, and the used car will also need more repairs in its later years. Lesson 5.3 adds those running costs.
The same logic explains why a car with only a year or two of COE left can look very cheap. It is cheap to buy and expensive per year, because all of its depreciation is packed into a short period.
Many dealers and car listing sites show a depreciation per year figure for each car, worked out from the price, an end value and the COE years left. Sites differ in which end value they use, so check how the figure was worked out before you rely on it. Used that way, it lets you compare cars quickly.
If you plan to sell before then, use your own estimate of the value left, as Arjun did for the new car. If you plan to keep it until the COE runs out, assume the value left is small, as Arjun did, unless you plan to renew the COE.
What you shouldn't do is compare a new car's price with a used car's price, or one car's instalment with another's. Neither tells you what the car costs you to own each year.
For the activity, choose two cars you might consider, find their listed prices and stated deregistration values or your own estimate of the end value, and work through the formula for each.
Work out yearly depreciation for two cars you might consider, using listed prices and stated deregistration value.
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