Should you lease or buy a car in Singapore?
Wondering To Buy Or Lease A Car In Singapore??
Singapore is known for its expensive cost of car ownership. Why is this so? In line with the government’s position to maintain healthy car population, clever use of monetary controls with economics allow the prices of cars to fluctuate based on market conditions.
The price of a new car depends on five factors including:
- The known Certificate of Entitlement (COE),
- Local Dealer’s Margin,
- Open Market Value,
- Additional Registration Fee,
- Excise Duty and GST
Due to the high costs, cars are not affordable options for the general public. As a result, public transport becomes the option for the bulk of Singaporeans. However, the convenience that comes along with private cars remains attractive, thus leasing becomes a viable alternative for consideration. Leasing allows drivers to drive for a fixed duration based on contracted terms at a price. Leasing a car requires lower cost commitment up-front, and provide an all-inclusive maintenance and insurance price... Does it translate to long term cost savings for drivers?
Price difference in the long-term
When deciding between buying or leasing a car, the costs involved is extremely important.
Purchasing a new car comes with a monthly bank loan repayment and a large down payment. Leasing one allows you to gain instant convenience with an all-inclusive price covering road tax, insurance and maintenance. There’s no need to fork out a huge lump-sum for down payment and deposits are often refundable. But have you calculated how much do you actually pay for such convenience in the long run?
While a car purchase requires a large down payment and long term maintenance, it is estimated by ValueChampion that the overall net cost is lower than leasing. For example, an all-inclusive expense costs around $130,859 for a 7-year loan at 2.5% interest rate, insurance, road tax and car maintenance. Alternatively, the overall leasing costs for the same model over a duration of 7 years is $127,050.
Key Terms Related To Vehicles
Although the number for leasing is lower, the key difference here that people often miss is that you retain the value of your car. Every car comes with an original cost of production called the Open Market Value (OMV) in Singapore. Known as the Preferential Additional Registration Fee (PARF) rebate, it is a percentage of OMV. Registered owner of the car is entitled to PARF should the vehicle is deregistered within 10 years from its initial registration date. This makes car ownership cheaper in the long run despite the high initial cost as there’s remaining value upon the end of its Certificate Of Entitlement (COE).
So should I lease or buy a car?
There is no perfect solution as to which option best meet your needs. But, the first step you can take towards making a decision is to consider your personal needs, and how much cash you have available on hand. It is compulsory to hold a lump sum for initial down payment as car loans only cover a maximum of 70% of the purchase price. If you are unable to provide a sum of that size, then leasing may be a more suitable alternative for you.
Also, we mentioned that the costs of owning a car is lower in the long run. Should you require a mode of transport for a short duration for instance, one year, then the option of leasing may be cheaper and more convenient. Car leasing can also be a viable option should you want to test out several car models before deciding on one. The flexibility car leasing companies offers allows you to switch between car models and see how it fits into your lifestyle. On the other hand, owning a car offers you the freedom as you are free from worrying about lease renewal and related contractual terms. Upon fulfilling the repayment terms for the car loan, the total operating costs will be considerably lower than leasing one.
Regardless of the choice you make, you would have to make considerable adjustments to best match your lifestyle and budget as it’s a considerably big investment.