Tips on buying your first used car

It’s no secret that the price of cars in Singapore is the most expensive in the world. Which is why looking for a used car sometimes makes more sense. If that’s you, and all the makes, models and mileage history are making you blurry eyed, we empathise. Here are some tips on how to get the most car for your dollar.

Know your budget

Ah, the magic number towards owning your dream car. Unlike dreams though, the cost of car ownership is very real. Cars do break down, need regular servicing, and may even get into the occasional fender bender.

When figuring out your budget, consider not just the purchase price of the car, but the cost of maintaining it. There are fixed costs—for example, season parking and road taxes—and costs that crop up when you least expect it: when the engine stalls on a Monday morning, or when the air-conditioner blows its last breath of fresh air on a 38-degree day. Do your due diligence on the cost of spare parts, and any known issues with the car model before deciding to buy. Depreciation for certain cars might be low, but that is still thousands of dollars that you effectively write off each year, whether your car is heavily used or not.

Know your (uniquely Singaporean) car jargon

As with any new topic, the car world has jargon that might be confusing to new buyers. Here’s a breakdown of the key terms that affect the price of a used car.

• Certificate of Entitlement (COE): Legal document allowing a car to be driven on Singapore roads. Can be renewed for 5 or 10 year durations.
• Open Market Value (OMV): Every car has its Open Market Value – the price tagged on the car by Singapore Customs based on purchase price, freight, insurance and all other charges related to the sale and shipment of the car to Singapore. As we’ll detail later, the OMV determines the maximum loan amount you can borrow.
• PARF (Preferential Additional Registration Fee): If you are looking at a used car, you’d likely be looking at PARF cars (less than 10 years old) instead of COE cars (Certificate of Entitlement, typically referring to a car that has had its COE renewed). These terms are commonly used to provide a quick indication of the car’s age. If you decide to deregister the car before the 10-year expiry date, you’re entitled to a PARF rebate, pegged at a percentage of the remaining OMV. Note that you may have difficulty in securing a loan for a COE car.
• Additional Registration Fee (ARF): Lastly, there’s ARF, a tiered tax based on the OMV of the car.

These can add up to quite a bit, so be prudent, and don’t overstretch yourself financially.

Know how much you can borrow

Now that we’re familiar with the terms, let’s look at the considerations when applying for a car loan.

You can apply for a bank loan if the car is less than 10 years old from the original date of registration, to be paid up within 7 years or less. If the car is reaching its 10-year mark, you may not be able to stretch the loan period to something that you are comfortable with, which may affect your monthly cash flow.

So say you’ve decided on a budget of $70,000 for your used car. The maximum you can loan is pegged to the Open Market Value (OMV) of the car shown in the table below:

However, do take note that the OMV of the used car will be adjusted based on the car’s age to determine the loan-to-value (LTV) ration.

To gauge the loan amount that you can be eligible for, you will need to consider these other factors:

• The bank’s minimum gross monthly income criteria
• Your current outstanding financial commitments e.g. housing loan, personal loan, car loans, etc

Calculate your car loan

Find the right marketplace

You can find used cars for sale everywhere, including on your mobile. We’re referring to the boom of online car marts that facilitate the buying (and selling) of cars directly between private owners, rather than through a traditional dealer. A good place to start would be DBS’ very own car marketplace, which has the largest number of direct car owner listings.

A private seller may be more willing to negotiate on the price, while dealers may be more firm on their prices, but offer a warranty instead. Whichever avenue you decide to purchase a car from, don’t rush through the process. Check the fine print – if there is a warranty that comes with the sale, or if a dealer has a reputation for poor customer service.

Do a proper car inspection

You’ve worked out your sums, found the future car of your dreams, and shortlisted a few credible options to literally kick the tires. Though less financially taxing than purchasing a new car, a used car’s future maintenance and servicing costs hinge greatly on the car’s condition. Here are some basic steps to do a car inspection:

• From 10 steps away: Do the body panels look straight? Is it listing on one side? Either could indicate a prior accident with underlying damage that could be expensive to put right. Conversely, if the defect is minor (e.g. dings in the door), use that as a bargaining point to a discount.
• From 5 steps away: Are there missing trim pieces? Does the paint still look deep and glossy, or is it patchy, wavy in the light, or showing visible scratches? The condition of the exterior body can help to indicate if the car is really accident-free.
• Open the bonnet: Are there oil leaks below the car? Does the engine compartment look relatively clean, or are oily patches visible? Does the engine idle sound even or choppy? As the engine is the main component of the car, repairs to it or to the transmission can wipe out a significant chunk of your car-owning budget.
• From inside: Is the interior clean? Do seats or seatbelts look worn? Do all electrical features work? Worn looking seatbelts tend to indicate lots of past use, and should correlate to the stated mileage of the car. And modern cars are filled with electrical gadgets that are a major (and possibly expensive) bugbear to fix.
• From the driver’s seat: Is the air conditioning cold? Are there strange sounds during acceleration, braking, or turning? Does the car pull away cleanly or are the transmission shifts jerky? Depending on the age and asking price, watch out for deal breakers unless you’re confident that the repair won’t be too costly.

If you aren’t confident in your abilities to gauge the car’s condition, bring along a car-savvy friend, or ask if the seller would allow an independent inspection by a trusted workshop. For a small fee, a workshop would be happy to do a thorough and professional check on the condition of the car, saving you potential headaches down the road.

Should you buy the car?

Used cars can vary significantly in condition, and viewing more than a handful of vehicles would allow you to get a better sense of their innate quirks and what is typical for the model you are looking for. Consider these before signing the deal: Does the car need repairs and is the seller willing to cover the repair costs? Does it have a comprehensive service history? Does it have a high number of previous owners and hence may affect future resale?

Do your homework, and you’ll be soon on your way to miles of happy motoring ahead.