How to Purchase Your First Car Within Your Means

10 September 2018

This article was first published on GoBear. Compare credit cards, insurance and other financial products based on your needs at GoBear.

For every car buyer, the biggest hurdle to cross is the high cost of the Certificate of Entitlement (COE) that’s unique to Singapore.

The good news is, the COE has recently stabilised and even hit an 8-year low. That presents an opportunity to get your first car at a relatively reasonable cost.

But like every purchase you make, you’ll need to do your due diligence. This is especially true for a big purchase like a car which comes with a commitment of at least a few years.

To help you make an informed purchasing decision, here are a few points to consider when you choose your next ride.

Monitor the COE prices closely

As mentioned, the COE will make or break your decision when it comes to getting a new car.

To state the obvious, a low COE is always preferred, both presently and in the future. With a dip in the COE value, there’s a chance that the next bidding round will stay at that level. At the very least, it will come with minimal adjustments.

Communicate with your car dealer and inform them of a price you’re comfortable with for the COE bid. Remember, it is in their best interest to secure the bid at your request as that would amount to a sale (and commission) for them.

While COE prices are readily available online, car dealers can provide additional information when it comes to COE. Those who go the extra mile will monitor, analyse and advise if you should bid or wait for the next COE round.

Understand the car loan system

Getting a good grasp of how car loans work in Singapore can help you with your planning.

For a start, cars with an open market value (OMV) of $20,000 or less will qualify for a loan of up to 70% of the total car value. This loan limit is reduced to 60% for cars with an OMV that’s higher than $20,000

Also, you can only take a loan for up to 7 years for your car. Interest rates for car loans will vary between banks, but the average you’re looking at is 3% per annum.

While banks offer the most direct access to finance your car, your car dealer might also have an alternative in-house financing option for you.

However, don’t be too quick to jump onto this option. In some cases, car dealers might act as a proxy to offer a higher loan tenure or amount. Both, however, will add up in the long run.

The moral of the story? Always compare loan options to find the rate that you can afford during your car ownership period.

Be aware of how much you can actually borrow

The Total Debt Servicing Ratio (TDSR) is a framework that determines how much you can borrow at any given time.

This is dependent on your monthly debt repayments, which cannot exceed 60% of your income. Like all loans, your car loan also factors into this limit.

Let’s say you are earning $5,000 a month. Considering the TDSR, that means your loan repayments cannot exceed $3,000 per month.

Whether you’re taking a loan to pay for your car or house, this is the definite upper limit. Thus, always factor this into your financial plans before making any big purchases.

Never walk into a showroom without a number in mind

Getting something beyond your means is always a big no no. And if you don’t set a limit for yourself, it’s easy to overspend. This is especially important when it comes to car buying. There, you should Aalways enter a showroom with a fixed number.

Know the upper limit based on what you can afford. Then, target a car that’s somewhere 20% below the said limit.  Think you can go with $100,000? Tell the car dealer that your budget is set at $80,000.

Part of getting a number in mind is to know the price range of the cars you favour. Always do your due diligence and check out the prices online. Even then, the pricing are only an indication and might not be final.

Once you’re familiar with the price range, you control the conversation with the dealer. Never let them nudge you towards a price you’re uncomfortable be.

If you’re aiming for a used car, know this - the price difference between a second-hand car versus a brand new one can range from $35,000 to $40,000. Even if the used car is less than a year old, always make sure it’s not priced too close to a brand new car.

Purchasing at the right time

Ever felt the urge to get that brand new thing that just hit the market?

Don’t. As an early adopter, you’re paying a higher price, as opposed to buying it when it has spent some time on the market.

This applies to all your latest gadgets such as smartphones, tablets and yes, cars too.

Buy only when you absolutely need to. Don’t forget about that COE, which will adjust through the months. Instead of paying for a high COE, wait it out for a more reasonably priced COE.

Entering a showroom on certain days might yield different results too. COE bids close on the first and third Wednesday of the month. As such, price spikes might happen just before this period, in anticipation of a high bid. So avoid the showroom on these particular Wednesdays.

Car shoppers usually flock to showrooms during the months of December and January, when their bonuses are in and they feel mighty generous. This is good news for the car salesman as demand is high. But that also gives them less incentive to lure you in with a good price or additional promotions to sweeten the deal.

May or June tend to be slower months, and a salesperson who is two or three sales away from meeting quota may rush to close you with a lower price. As such, plan your car purchase during the mid-year period.

Do a parallel parking test with the car

This is kind of specific, but bear with us, there’s a reason behind this.

Parallel parking a car will give you a good indication of how comfortable you are with the car’s size. From knowing how to gauge the corners of the vehicle, to assessing the viewing angles, all these will be put to the test during the parallel parking.

If you are bumping up from a small sedan to a large Special Utility Vehicle (SUV), the parallel parking test can help you decide if the size upgrade is a good fit.

Long story short, choose a model that will give you a pleasant parking experience. And for that matter, an overall good driving experience.

Test drive with passengers

More often than not, you won’t be the only person in the car. Your passengers, be it friends or family, will be part of the experience.

As a driver, you only know how it feels to drive. Outside of the driver’s seat, the experience can only be felt by your passengers. You need to rely on their invaluable feedback to know if the car is as comfortable for you as it is for passengers.

Comfort aside, if you or your passengers find it difficult to get in or out of the car, it’s a red flag to avoid this model. This is especially important for elderly or mobility-impaired passengers.

On top of this, always invite family members who will be driving the car for the test drive too. While everyone’s driving style is different, you should come to a consensus about the car everyone is comfortable with.

Be mindful of the tyre condition

Whether it’s a second-hand or new car on your radar, always remember to check the tyre condition. If the treads look smooth on one side but flattened on the other, it’s a sign of feathering.

This goes beyond a tyre that you might have to change out. Feathering occurs due to alignment and suspension issues with the car, both of which are costly to fix if you miss it.

You’ll need to do more than a cursory look at the tyres to catch this. Go deep and really get down on one knee and have a closer look to detect such issues and arrest it before it becomes a bigger problem.

Ease of replacement for vehicle parts

Choosing a car is more than just getting the most fancy or cost effective option. You’ll need to consider how easy it is to fix the car should any maintenance issue pop up.

This is why trustworthy car dealers are valued for their honesty. They have a strong network of mechanics and workshops who can offer such replacement parts with ease.

That said, you’ll need to double-check with your car insurer on the approved workshop list. This can influence your decision with the car you’re buying, especially if the workshop recommended by your car dealer is not on the list of approved workshops.

Of course, you can always opt to buy the car you want, rather than the car that’s properly covered. Though we think the latter is more practical.

Protecting your car with the right insurance

A car is a costly asset. So it makes sense to get a comprehensive coverage to protect your asset. Know this - it’s mandatory to get a car insurance. But you still have a choice, which is to select the right car insurance policy that suits your budget.

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