With COE prices expected to rise, buying a brand new car in the coming 12 to 36 months might prove to be a little taxing on personal finances for some, especially in this period of financial recovery. For those who need a car or need to change their car, used cars are a good option and can offer some very tangible advantages over purchasing a brand new car. For instance, purchasing a used car can help reduce your overall loan quantum, and by extension improve your Total Debt Servicing Ratio (TDSR) - this is especially useful if you are also expecting other big ticket expenditures that require financing, such as a new house where a smaller car loan can greatly impact the amount of money you can loan from the bank for your home purchase. To an extent, used cars also offer better liquidity than a new car. Generally, used cars sit closer to their deregistration value than a brand new car, and in the unfortunate situation where you need to get rid of your car to free up funds, a used car provides a better shot that you’ll properly break even on your bank loan with some spare cash. This is especially so if you need to sell your car in a hurry and cannot afford to wait for a buyer - you might even be in a position to scrap your car on your own timeline, without the need to wait for a buyer. Of course, this will depend on many other factors such as your COE value and the age of your car. Nonetheless, if you see the need to be financially conservative in the near future, used cars can be a great option, and if you acquire the right unit in the right condition, can be just as rewarding a purchase as a new car.

There is one problem though - I’ve found that many Singaporeans find the process of acquiring a used car to be daunting and intimidating, with some still holding on to the stereotype that used car salesmen are dishonest. If you fall into this category, but have always wanted to consider a used car, you’ll be glad to know that the process can actually be straightforward, transparent, and sometimes even pleasant. If you have a clear understanding of the process and the steps, it would go a long way in ensuring a pleasant used car purchasing experience.

The first step of your used car hunt usually starts with you sourcing the appropriate unit. This is where you’ll think about which make and model you are after, and what sort of age, color, and mileage you prefer. If you are working towards a commonly traded make and model, you’ll likely be spoilt for choice - but if you are looking for a an extremely specific make and model in a specific trim level, or a rare model, then you may need to be patient, and regularly check out online listings and wait for one to pop up. Keep in mind though, that because you are dealing with used cars, it would be wise to treat these preferences as guidelines, rather than a hard and fast rule. Sometimes your preferred unit might just sit slightly outside your originally intended specifications.

Personally, I always shortlist a unit with the lowest depreciation and one of the higher depreciating units for viewing. In Singapore’s used car market today, pricing is quite transparent in the sense that most cars of similar age, condition, and mileage will be expected to transact at about the same price. A unit with the lowest depreciation will likely be a consignment unit where the dealer doesn’t have a floor loan on it, and would quite accurately represent the appropriate price for a car at that age. A unit with a propped up depreciation, is likely going to be available for negotiation, and will eventually also transact at a similar price to the lowest depreciating unit after a few thousand being knocked off the price. Simply put, judging a car’s depreciation to see which age of car you’ll want to work on is a good way to think about things - but do not be misled to think that two cars of a similar age would depreciate at vastly different rates. If you are planning on trading in a car to facilitate your new purchase, it would also be a good idea to standby your car details for the used car dealers to do a check via One Motoring and provide a trade in quote for your vehicle. You’ll need to provide them with your car license plate number, mileage, and last 4 digits of the registered owner’s NRIC.

In Singapore, Monetary Authority of Singapore (MAS) guidelines stipulate that depending on the car, buyers can take up a maximum loan quantum of 60% - 70% of the car price, spread over a maximum loan period of 84 months or the remaining lifespan of the car, whichever is shorter. This is based on bank loan specifications with interest rates typically ranging from 1.88% to 2.48%. Officially, this is the only way that Singaporeans are supposed to carry out a car loan. However, this isn’t exactly true. In reality, there are also financing company loans which allow an 80% loan with interest rates ranging from 2.48% to 2.98%, as well as private financing loans that allow up to a 90% loan with interest rates ranging from 2.98% to 3.98% (sometimes with a guarantor needed). To be honest, I am not entirely certain how these financing companies are allowed to operate in this manner, but these financing terms are pretty standard and available among used car dealers. You just need to let them know under which method you’d prefer to finance your car.

As a general rule of thumb, the lower your loan quantum and interest rate, the lower your monthly installments and total interest paid will be. However, your down payment will be the largest. There is no right or best way to finance your car loan, but your considerations should revolve around these factors. Splashing out on down payment helps save total interest paid, but it also sets you back tens of thousands of dollars back instantly. Would you have been able to do something with that amount of money that might bring your earnings that exceed your interest rate? If the answer is yes, then my sentiment is that you should take the larger loan, and maximise the use of your cash, rather than locking it up through your down payment. Many people do not realise this, but Singapore’s loan interest rates are actually one of the lowest in the world, making it extremely easy and affordable to loan money for various purposes. In business, leveraging interest rates by borrowing money at cheaper rates, while protecting business cash flow which can outearn the loan interest is a common and well utilised business mechanic. In many ways, this same logic is also applicable to the consumer when approaching something like a car loan.

After you have decided on your preferred loan format, you will then have to get the official loan offer. This usually takes about 1-2 days for banks (apparently OCBC does this in 60 seconds now), and private financing takes about 2-4 days to come back with an offer with the actual interest rates they will be willing to loan you the money at. To activate this process, you will likely be asked to pay a deposit of $1,000 to $2,000 as an intent to purchase. This amount will usually be offset from your down payment amount. In some cases with private financing loans, consumers will want to try for 2.9% and are maybe not willing to accept a loan interest of 3.98%. You can discuss this with your dealer, saying that you’d like them to sign an agreement to allow you to rescind your intent to purchase, along with your deposit, if the interest rates exceed hit for example, 3.98%. As the interest rate has a direct impact to your monthly installments, most dealers are quite agreeable to this if you ask for it, and will help to facilitate this. Once done, all you have to do is wait.

Once you have gotten and accepted your loan offer, it means the deal is on, and your next step would be to select an insurance provider for your new purchase. Sometimes, the dealer will kickstart this process for you even before they get the loan offer back. Typically, your dealer will help you to source for at least 3 quotes from 3 different companies, and allow you to choose which one you prefer. Generally, one would usually make the decision on insurance based on price, excess, and suitability of reporting and repair centres in relation to the car they are purchasing. While price is important, keep in mind that the cheapest insurance quote might not be the most suitable one for you. To read about some of the considerations you should take when choosing the right insurance for your car, check out this useful article. Once chosen, you’ll likely be sent a credit card form for them to charge you, and this typically all gets settled within a day.

From start to finish, the process can take as little as 7 days, and on the day or car collection, you will have a few outstanding things to settle. Firstly, there will likely be loan offer documents you’ll need to sign and confirm. Secondly, you’ll have to sign the insurance form for your new car, and the termination insurance form of your old car. Your dealer will usually send that in for you, and your previous insurance company will send you a pro-rated cheque of the insurance coverage period you did not utilise in your old car. Lastly, you’ll need to login to One Motoring, to do a transfer of your old car to the dealer. Following that, you can collect your new car and drive home. After a couple of days, your dealer will then initiate a transfer of your new vehicle to you, and you’ll have to login to the system to accept this transfer. This is typically done within 3-4 days of your car collection.

If you ar keen on taking your first step into buying a used car, browse Carousell's Used Car listings to find a vehcile that suits your needs.

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