Buy Car Vs Rent Car, which is better?
Singapore is the most expensive place in the world to own a car. Coupled with Monetary Authority of Singapore’s Motor Vehicle Financing rules that enforces car buyers to fork out up to 40% of the car cost for down payment (with effect from 27 May 2016) , the uniquely Singapore’s Certificate of Entitlement (COE) and the huge amount of hidden costs associated with owning a car – could it be more worth it to simply just rent a car?
Buy Car vs Rent Car, the age-old question asked from time immemorial (okay, I know that sounds a little exaggerated) – which option should you choose? Let’s weigh the pros and cons, and perhaps give you a better insight to make the informed decision for your car driving future.
For the sake of the comparative study, lets choose a standard sedan – the Mazda 3 1.5L Sedan.
Getting the Car.
As of 20 Jan 2017, the open market value of a Mazda 3, is S$17,300. However, this is not the price you will be paying to get the car, simply because… there is more.
First, a S$140 Registration Fee that covers the cost of registering a car in Singapore. And then, an Additional Registration Fee (ARF) that is calculated based on a percentage of the car’s Open Market Value (OMV) as assessed by the Singapore Customs. You can find out how the ARF is calculated here (https://www.lta.gov.sg/content/ltaweb/en/roads-and-motoring/owning-a-vehicle/costs-of-owning-a-vehicle/tax-structure-for-cars.html), while for your convenience, the total ARF payable for the Mazda 3 will be S$12,300.
The cost of the car has now almost doubled to S$29,740. Now comes the infamous Certificate of Entitlement (COE).
The COE represents the right to vehicle ownership and use of limited road space for 10 years. The LTA runs a Vehicle Quota System to limit the growth of vehicle population in Singapore, so to get the COE, you will need to participate in the twice monthly COE Open Bidding exercises (more information on COE, please visit: https://www.lta.gov.sg/content/ltaweb/en/roads-and-motoring/owning-a-vehicle/vehicle-quota-system/certificate-of-entitlement-coe.html), depending on your luck and bidding price, your COE cost may differ. But as of 20 Jan 2017, the COE quota premium for the Mazda 3 (a car that’s below 1600CC & 97kW) is S$50,889.
With the cost of getting the car has now bloated to S$80,629, lets add Excise Duty of 20% on OMV into the mix. Excise Duty is also known as the Customs Duty, a duty that is levied on goods imported into Singapore. The Excise Duty for the Mazda 3 is S$3,460. The total cost is now S$84,089.
The cost thus far had not factor in the profit that the car dealer would need to make. Take for example, a car dealer’s profit is estimated to be around 10% profit (in which all the various taxes, duties and COE are inclusive in the selling price), the profit would be around S$8,408.90. This profit will of course fluctuate as per the car dealer you choose and how your haggling with the car salesmen goes.
Now that your car now cost S$92,497.90, its time for it to be subjected to Singapore’s 7% Good & Service Tax (GST). The final cost of the car is now S$98,972.75.
On the bright side, all the above mentioned are already included in the price tag of the car in the car showroom, so you do not need to worry about the arithmetic.
To pay for the car, you can borrow up to 70% of the purchase price (for cars with an OMV of S$20,000 or less). Which means the down payment for the Mazda 3 is S$29,691.83.
Before you collect your car, which the waiting time for the car would take between 2 weeks to 6 months, you will need to pay the full down payment, the 1st installment of the car loan (which is $985) as well as the car insurance premium for the first year (a Comprehensive Car Insurance for a Mazda 3 is about S$2,140 a year, inclusive of 7% GST)
All in all, it means it will cost you 2 weeks to 6 months of waiting, and S$ 32,816.83 just to get the car.
If you instead chose to get the car by renting from a car rental company, the process would inevitably be a lot less stressful and the costs will be a lot more transparent too.
First, you will just need to find the right car rental company that will provide you the right fit for your budget (hint: you should really check out Bizlink Rent-A-Car).
Getting your ride with a car rental company is straightforward: call up the car rental company for enquiry, come down for the test drive, sign the agreement and pay the upfront payment. You can drive the car off immediately upon signing the agreement (will need to wait if the car rental company is buying you a new car)
For the convenience of the comparison, we will be using Bizlink Rent-A-Car as the Car Rental Company. The upfront payment for the Mazda 3 to Bizlink would be around S$4,000 (1st month rental plus 1 month deposit), subjected to 7% GST.
Upkeeping the Car
As we had bought the Mazda 3 with a 7-year repayment loan for 70% of the vehicle cost, it is time to calculate how much it cost on a per month basis to upkeep the car.
For a loan amount of S$69,280.93 the monthly installment would be S$985, at an interest rate of 2.78% (the interest rate would vary depending on the institution that you get the car loan from). Remember to check your Total Debt Servicing Ratio (TDSR) or your debt obligation limits when you apply for your car loan. Read more on TDSR here.
On top of the car loan installment, you will need to service a yearly car insurance (a Comprehensive Car Insurance for a Mazda 3 is about S$2,140 a year, inclusive of 7% GST) and a yearly road tax of S$682 for the Mazda 3.
So, the monthly upkeep for the ownership of the car would be around S$1,220.17.
If you had chosen to rent, you need not worry about the road tax or the car insurance. All these are inclusive as part of the package (remember, we are using the Bizlink Rent-A-Car’s package for the example for the Car Rental part of this comparative study).
The monthly rental for the Mazda 3 is around S$2,140 (inclusive of 7% GST). No hidden cost.
(Note: The cost for petrol, parking charges as well as Electronic Road Pricing (ERP) charges are not included in the comparison since the cost would be identical for both buyer and renter of cars
But if you want to know, according to oneshift.com Mazda 3 averaged around 12.7km/litre. So, if you drive 50km a day, or 1500km a month – your petrol would cost you about S$250 a month. Monthly parking cost could work out to more than S$400 a month, depending on your car usage. If you work within the Central Business District (CBD), you will have to pay a minimum of 2 dollars a day on ERP, which will set you back S$60 a month – this estimate is definitely on the low side (visit this web page for the complete ERP rates and the operational timings: https://www.onemotoring.com.sg/content/onemotoring/en/on_the_roads/ERP_Rates.html).
In total, the monthly cost of using a car (not including the cost of the ownership) would be at minimum S$710 a month)
Maintaining the Car
For good practice, it is ideal that every driver send their car for general servicing every 6 months (or every 10,000km of driving) which would probably cost you around S$200. This however does not include the cost of any repairs, replacements or new parts.
Based on our estimate, maintenance over 5 years would cost up to S$5,840, which is about S$97.33 per month. The estimate includes general servicing (twice a year), tyre change (1 x 4 wheels), engine oil & filter change (twice a year), spark plugs change (once a year), auto transmission fluid flush (every 50,000km of driving), power steering fluid flush (every 2 years), brake pads (every 50,000km of driving), brake fluid change (every 50,000km of driving), engine air filter (every 10,000km of driving), timing belt change (every 100,000km of driving) as well as tyre rotation, balancing & wheel alignment (every 10,000km of driving).
While it is tempting to save money by skipping on car servicing, doing this may risk you a much bigger bill later. As the cost of servicing is a lot lesser than replacing parts due to damage from poor maintenance, so it is advisable to always keep your car well maintained.
And if for any reasons your car breakdown in the middle of the road, do be prepared to have the emergency contact number of your garage or car tow / vehicle recovery services in your car always.
For those renting, free regular car maintenance is included in your rental package. On top of that, any damaged or worn out parts that requires replacement are also replaced free of charge.
If your car breaks down, just call Bizlink’s 24/7 Roadside Assistance at (+65 9012 6616) – everything will be settled and taken care for you. You will be provided with a temporary car to drive while your car is under repair. You can then carry on with your daily routines as per usual without any disruptions.
Accidents and Insurance Claims
If you ever get into an accident, you will need to call your insurer for a tow truck or for further advice on the accident. If your car is not towed, you will need to report and bring in your vehicle to the approved reporting centre/authorized workshop within 24 hours or by the next working day to get it checked (regardless if there is any visible damage). Failure to report the accident will result in a loss of your No Claim Discount upon renewal of your policy.
If you are the person responsible for the accident, you will lose any form of discounts to your premiums and may even have your premiums increased when you renew your insurance policy. The insurance premium may shoot up to more than 70% of your original premium rates after a claim is made against you.
Because of the tremendous increase in car insurance premiums or loss of discounts, many drivers chose not to make claims for minor accidents – they however expose themselves to unauthorized tow-truck operators or repair workshops that charges exorbitant rates for the repairs.
For renters, your situation will be more straightforward.
You will just need to pay for any damages to your car up to the excess amount that is set in the insurance policy that comes with your rental package. For the Mazda 3 in our case, the excess amount is S$1,800 (for accidents in Singapore).
In another word, you will never need pay more than S$1,800 in your repairs when you get into any accident. However, if you are the one that hit others, you will need to pay for the other party’s damages. There will be no “increase in premium” or “losing of discounts” to worry about for your case#.
In the event, that you are caught in an accident, just call the Bizlink’s Roadside Assistance hotline, and Bizlink will take care of everything for you – just foot the bill for the damages to your own car (and the other party’s damage if you are at fault).
(note: However, if it is proven that it is due to negligence where your car is missing or on fire, you will be liable to bear full cost of the damage incurred to the rental company. Accidents involving foreign registered plate, the policy may not cover
# Bizlink reserves the rights to increase the insurance excess if the customer constantly get into accidents.)
Added Bonus For Renters
A unique advantage that car renters have over car buyers, are the ability to change a new car every few years.
Typically, a long-term contract for car rental last around 2 to 3 years. At the end of the contract, you can choose to change to a different model or even change to a new car (yes, absolutely new) upon recontract.
This is something that car buyers would not be able to match. The cost of a new car and high depreciation rate in the first few years of a car would mean that, changing a new car every 2-3 years is impractical. The earliest a person would change their car would usually be on the car’s 5th or 6th year.
Another major advantage for car renters over the car buyers, is the lack of debt obligation when you rent. In June 2013, Monetary Authority of Singapore announced the Total Debt Servicing Ratio (TDSR), a debt obligation calculation that encourage financial prudence as well as to facilitate bank’s assessment of borrower’s repayment ability.
The TDSR is currently set at 60%, which means that your total monthly liabilities are capped at 60% of your gross monthly gross income. Liabilities includes personal loans, instalments and car loans. TDSR is based on the loan tenure, loan amount, combined monthly gross income (together with your spouse’s), combined monthly debt obligations and your credit card balances. The TDSR rules applies when you want to get a new property loan.
If you rent a car, your TDSR will be untouched, allowing you greater flexibility when you require to borrow or invest in a second property.
In summary, it is cheaper to buy and own a car than to rent, however, huge amount of upfront payment, the amount of hassle that comes with managing your own car and the threat of high premiums after car accidents may tip the balance in favour of renting one. The added advantage of changing a new car every 2 to 3 years and not increasing your TDSR make renting a car a worthwhile consideration.
Hope the above information will be helpful in your decisions to get into the driving seat.
Note: The comparative study above is for illustrative purpose only, please refer to your car dealership for an accurate costing for the car of your choice.