You will be able to total the yearly cost of financing, insurance, road tax and running a car.
The salesperson's last line to Arjun was the one he remembered: "Only about S$1,200 a month." It was the loan instalment, and it was accurate. It was also the one number that told him least about what the car would cost, because it left out the interest hidden inside it, and every cost that comes after you drive away.
This lesson adds up those costs. With depreciation from lesson 5.2, they give you a yearly figure you can compare with any alternative. Every figure here is made up for the example.
MAS sets limits on car loans: how much you can borrow as a share of the car's price, and for how long. The limits depend on the car's Open Market Value, and they have been changed over the years. Check the current rules on the MAS website before you plan, because they decide how much cash you need upfront. Credit and debt: scores, cards, loans and BNPL covers car loans in detail in lesson 5.1, Car loans: flat rates and MAS limits on loan size and tenure.
Car loans in Singapore are usually quoted at a flat rate. As How money works lesson 3.2, Why a flat rate loan costs nearly double what it looks like, explained, a flat rate charges interest on the full loan for the whole term, even though you owe less every month. The true cost is the effective interest rate, or EIR.
Arjun's example offer is S$66,000 at 2.6% flat over five years for the S$120,000 new car from lesson 5.2. The interest is S$66,000 times 2.6% times 5, which is S$8,580. Add it to the loan and divide by 60 months, and the instalment is S$1,243 a month. Using the RATE function from How money works lesson 3.4, Calculate the EIR of a flat rate offer with the RATE function, =RATE(60, -1243, 66000) times 12 gives an EIR of about 4.9% a year, close to double the 2.6% on the banner.
For the yearly cost of ownership, count only the interest, not the whole instalment. Most of the instalment repays the price of the car, and that is already counted in depreciation. Counting it again would double the cost. So the financing cost is S$8,580 over five years, or S$1,716 a year.
The S$54,000 he pays upfront is cash that is no longer earning anything elsewhere. Some people add that lost interest as a cost too. It is a fair addition if you want a fuller picture, as long as you use a cautious rate.
Running costs start the day you collect the car. The main ones are:
Insurance, renewed every year, priced on the car, your age, driving record and no-claim discount Road tax, paid to LTA and based on the engine or motor, which you can look up for a specific model on the LTA website Petrol or charging, which depends on how far you drive ERP charges, set by LTA by location and time of day Parking, including season parking at home and at work, and at the places you visit Servicing and repairs, which rise as the car ages
Arjun's estimates, all made up, come to S$8,400 a year: insurance S$1,800, road tax S$900, petrol S$3,000, ERP S$480, season parking at his HDB block S$1,320, and servicing S$900. That is S$700 a month on top of the instalment.
Two of those lines depend more on where you live and work than on the car. Season parking rates differ by type of car park and residential or commercial use, and HDB and URA publish theirs. ERP depends on which gantries you pass and when. A car that sits in an HDB car park all week and comes out on Sundays costs much less in ERP than one driven into the CBD every morning.
So don't use an average from someone else. Map your own week. Arjun works in the CBD but plans to keep taking the MRT to work, and use the car for weekend trips to Jurong and the occasional supermarket run. His ERP estimate is low because of that. If he started driving to work, he would add daily ERP and CBD parking, and the yearly cost would jump.
Insurance is the other line that depends on you. Ask for real quotes for the model and your own driving record rather than relying on a quote a friend received.
Put the pieces from this module together. Per year, Arjun's new car costs:
Depreciation of S$12,000 from lesson 5.2, financing of S$1,716 and running costs of S$8,400. That is S$22,116 a year, or about S$1,843 a month.
The S$1,243 instalment he was quoted is about two-thirds of that. The rest is costs that never appear on the loan documents. Lesson 5.4, Build a car versus no-car comparison, sets that yearly figure against what he would spend without a car.
Arjun's figures are only his. Yours depend on the car, your routes and your driving record, so the activity starts from real quotes and your own week.
List every running cost for one car with a yearly estimate and its source.
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