When is the best time to sell my car? - Understanding the depreciation of cars in Singapore

Michelle Lim
27 Mar 2018
 

When is the best time to sell my car? - Understanding the depreciation of cars in Singapore

People purchase property with the expectation that its value will increase over time. However, this does not apply to cars. Cars are purchases that lose value over time and the rate in which cars lose their value varies according to their age, make, and model. When is the sweet spot to sell your car if you wish to minimise its depreciation?

One may not necessarily realise that a vehicle’s depreciation is the most expensive cost of owning a vehicle. Cars that are kept in good and pristine condition will still decrease in its value over time. When you are looking to sell your car, you will want to have a good idea of your car’s valuation to ensure that you do not sell it at an even greater loss.

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Annual Depreciation =
(Total Cost of Vehicle – Value of Selling or Scrapping your car) / Number of Years in Service of the car

To calculate the total cost of your vehicle, you must take into account the Open Market Value (OMV), Registration Fee (RF), Additional Registration Fee (ARF) and COE.

Read also: How is my car valuated in Singapore? – 6 tips to improve your car valuation to find out more about the OMV, RF, ARF, and COE and how your car is valuated.

Also, with cars, the depreciation is not regular and consistent throughout its 10-year lifespan. In the first three years, the new car will likely depreciate at a much higher rate and one may not want to sell the car during this period unless absolutely necessary.

With that being said, let’s now look at the depreciation curve. This graph is an estimate to help visualise what we meant by an uneven depreciation over the years. We have taken a Toyota Prius Hybrid 1.8A and worked out the selling price of the vehicle in each year. Do take note that we have based the selling prices on prices that are advertised by car dealers, consignment agents, and direct sellers. When selling your car, you will likely get less than this figure should you be selling it to a car dealer as they will need to factor in repair costs and gain a slight profit. (Read also: How to sell my car to a used car dealer?)

With this graph, you can clearly see that it is actually more expensive to sell your car in the first three years of purchasing it. Especially in the first year, it is difficult to sell your vehicle for a high price as consumers would rather get a brand new car for just slightly more, hence, in order to sell it successfully, most used car dealers will quote a much lower price to make it attractive for consumers. In that first year, should you sell your car, the annual depreciation would amount to $52,000 (for a Toyota Prius Hybrid 1.8A!

To decide when is the best time to sell your car, it would be when the blue line is almost parallel to the red one. And that would be between the 4th to 8th year of the car. 

The 5th Year

As a guide, when your car hits its 5th year, it would be a good time to sell. Reason being is that the PARF rebate remains at a steady rate of 75 per cent. After its 5th year, the rebate will be reduced by 5% annually. 

Credits: https://www.onemotoring.com.sg/content/onemotoring/en/lta_information_guidelines/de_register_a_vehicle/PARF_COE_Rebates.html

However, some may not exactly want to switch cars at the 5th year mark because COE prices may be too high that year. Then, car owners can consider the next good timing…

The 8th Year

Scrap or sell your car at its 8th year mark. On its 8th birthday, it is when many of the cars are much older and may start to wear down. Car servicing and maintenance may be pricier as you will need to start changing several car parts. As such, it may be a wise decision to switch cars then. If you decide to scrap it because it already has been giving you a lot of problem at its 8th year, you will still be able to cash in the remaining COE and PARF rebates.

At the 8th year mark, there is also somewhat a demand for these used cars as young drivers who just got their license would prefer a older car to “practise” their driving skills before getting a new car or driving their parents’ expensive Audi, Mercedes, or BMW. Some drivers who simply need a vehicle to get from Point A to Point B may also purchase these vehicles as they are simply much cheaper than getting a brand new ride.

Whether you choose to sell your car at its 5th or 8th year mark, or even other time periods outside of these two years, it is important to plan ahead. Planning ahead will also help you to decide whether you wish to trade in, sell your car to a used car dealer, sell your car by consignment, or sell it directly to a buyer. Weighing the costs and benefits of each mode of sales will certainly help you get the most out of your car.

 


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