The COE Results for APRIL 2012 Category B (Car above 1600cc) is $91,000! Many people seem to be willing to pay a higher premium in anticipation of possible quota cut.

However, do you have to bite the bullet even if you really need to buy a car?

First of all, you must understand what is Certificate Of Entitlement (COE) Rebate.

According to onemotoring website, If the vehicle is de-registered before its COE expires, the registered owner may be granted a rebate on the Quota Premium (QP), the price of COE which he has paid. The rebate is pro-rated to the number of months and days remaining on the vehicle’s COE.

That means COE is a straight line depreciation. If you pay $91,000 for the COE, theoretically your car’s annual COE depreciation is $9,100. Many car salesmen will tell you that COE is an asset, it is ok to pay a higher COE as the resale value will be higher too. It never makes sense to me since the COE price will go down to 0 after 10 years no matter what.

Secondly, you must understand Preferential Additional Registration Fee (PARF).

The PARF rebate is computed based on the age of the car at de-registration .

You may use the PARF/COE rebate to offset the various upfront vehicle taxes and fees when you register a car. Effective from 1 September 2008, you may encash your un-used and valid PARF/COE rebate(s) if you don’t want to buy a new car.

For cars registered with COEs obtained from May 2002 tender onwards, PARF rebate for cars deregistered just before COE expires is 50% of ARF paid

For cars registered with COEs obtained from March 2008 tender exercise and onwards, the Additional Registration Fee (ARF) is 100% of Open Market Value (OMV). For cars registered with COEs obtained from March 2004 to February 2008 tender exercises, the ARF is 110% of OMV.

Now you should understand that a car is a depreciating asset, it should be effectively expensed every year and the residual value of this asset is PARF rebate.

Therefore, the simplified average yearly depreciation expense (excluding interest paid) of the car should be:

(Purchasing Price – PARF Rebate) / number of years left before COE expires

Here I will use a popular model Toyota Wish 1.8 to illustrate. Using Open Market Value calculator, you can see that the OMV of Toyota Wish 1.8 is around $21,000.

If you buy a NEW Wish today, it will cost you around $165,000,  the PARF Rebate is 50% * $21,000 = $10,500.

Yearly Depreciation = ($165,000 – $10,500) / 10 = $15,450

Wow, that is a lot of money! But hold on, you have another option to buy a 4 years’ old 2008 Wish. I just randomly pick up one example from shown below.

The selling price is $65,300 and OMV is $16,313. If you drive this car for 6 years and deregister it just before COE expires, the PARF rebate is 50% * 110% * $21,000 = $11,550. Since the car was registered on 31 Jan 2008 and COE expires on 31 Jan 2018, the number of years left before COE expires is 5.75 years.

Yearly Depreciation = ($65,300 – $11,550) /  5.75 = $9,348 

That sounds like a lot of savings!

In conclusion, It is no doubt that there are many factors to consider when buying a car, but it is very obvious that, in today’s situation, used car can be much more economical to own from money sense point of view. After all, the first owner will always suffer the blunt of depreciation in the initial years.

However, driving a car till COE expires may not the optimal solution. If you are savvy enough and willing to switch cars along the years, you can reduce the costs substantially.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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