Buying a car in Singapore is an aspiration of many Singaporeans. For the majority of us who do not have the cash to pay for the car in full, this entails taking up a loan to pay for the purchase of the car.
This article serves as a guide to the various fees involved in the purchase of a car and the relevant laws governing its purchase.
What You Have to Pay For
Purchasing a car in Singapore is a costly affair with various fees and charges. Accordingly, this article intends to break it down and make it digestible for the average person. The various charges involved the purchase of a car are:
- Registration fees;
- Goods & Services Tax (GST), which will be imposed on the car’s Open Market Value (OMV) and Excise Duty;
- Certificate of Entitlement (COE);
- Additional Registration Fee (ARF);
- Carbon Emissions-Based Vehicle Scheme (CEVS);
- Road Tax; and
- Special Tax.
Each of these fees and charges will be further elaborated upon below.
Registration Fees
For every car, there is a basic administrative fee of $140 and a processing fee of $25 (before accounting for GST).
Goods & Services Tax (7% GST on OMV + Excise Duty)
A form of consumption tax that is imposed based on the value of the car.
Open Market Value (OMV)
OMV is an amount that will be assessed by the Singapore Customs. The OMV is not the selling price from the manufacturer to local authorised dealers in Singapore.
When formulating the amount for the OMV, the Singapore Customs takes into account:
- The purchase price of the car;
- Freight costs;
- Insurance; and
- All other charges incidental to the sale and delivery of the car from the country of manufacture to Singapore.
Excise Duty
An excise duty is an additional form of tax imposed on the car. It should be noted that much like the Additional Registration Fee (ARF), the excise duty is also calculated based on 20% of the OMV of the car.
Certificate of Entitlement (COE)
The Certificate of Entitlement (COE) is required for anyone who wishes to register a new vehicle in Singapore. Accordingly, a COE represents a right to vehicle ownership and use of Singapore’s limited road space for a duration of 10 years. COEs are released through competitive bidding and there are 2 bidding exercises every month.
The COE consists of five categories:
- A – Cars 1600 CC below & Taxi;
- B – Cars above 1600 CC;
- C – Goods Vehicle & Bus;
- D – Motorcycles; and
- E – Open.
After the 10-year COE period has ended, a car owner may choose to deregister their vehicle or to revalidate their COE for another 5 or 10 years’ period by paying the Prevailing Quota Premium (PQP), which is calculated based on the 3-month moving average of the Quota Premium for the respective vehicle categories.
If a car owner does not intend to renew their car’s COE, their car will be de-registered at the expiry of their COE.
Additional Registration Fee (ARF)
Under the old system, the ARF is valued at 100% of the OMV.
However, since March 2013, a new tiered ARF structure is applied in the calculation of the ARF. Cars with OMV up to $20,000 will not be affected by the ARF but cars with the value of OMV that is in the range of $20,001 and $50,000 will be taxed 140% of incremental OMV. For cars with an OMV value above $50,000, it will be taxed 180% of incremental OMV.
More information on the calculation of the ARF can be found on Land Transport Authority’s website.
Carbon Emissions-Based Vehicle Scheme (CEVS)
In Singapore, the Government also takes into account carbon emissions. Where the cars emit low carbon emissions of less than or equal to 160 g/km, the car owners are entitled to a rebate that ranges from $5,000 to $20,000. On the other hand, car owners will be penalised with a surcharge that ranges from $5,000 to $20,000 if their vehicle emits carbon more than or equal to 211 g/km.
Road Tax
In Singapore, all vehicle owners must have a valid road tax for their vehicles before their vehicles can be used on the roads. Most road taxes are renewable either on a six-monthly or yearly basis. However, vehicle owners must fulfil certain prerequisites prior to the renewal of the vehicle road taxes, such as obtaining a motor insurance coverage for the new road tax renewal period and passing the periodic vehicle inspection.
Special Tax
If the owner’s car runs on diesel, a special tax is levied and is payable in addition to the road tax (which is covered above) of the vehicle. The special tax is meant to encourage fuel conservation and to discourage excessive use of vehicles that may contribute to general congestion and pollution.
Regulations Governing Vehicle Purchase
Unless you are able to obtain a car by making full payment upon purchase, it is generally accepted that an individual will be required to take a loan.
Accordingly, finance companies such as banks are the usual credit providers by way of hire-purchase. For instance, a person who wishes to purchase a car would enter into a hire-purchase agreement with a finance company after the finance company purchases the car from the car dealer. For more information on the Hire-Purchase Act, you can refer to our other article on “How does the Hire-Purchase Act protect consumers in Singapore?”.
Vehicle Loan Limits Set by the Monetary Authority of Singapore
Under the present regulations set by the Monetary Authority of Singapore (MAS), the maximum loan quantum that a car buyer can obtain is up to 70% of the purchase price of the car if the OMV of the car is worth $20,000 or less. If the OMV of the car is more than $20,000, the maximum loan quantum is 60%.
In addition, car buyers can obtain a loan tenure of up to seven years under the recently amended regulation.
Minimum Deposit
Given the amount of loan that can be obtained as stated above, there is a corresponding amount of deposit that must be made under a hire-purchase agreement.
Under section 4(1)(a) of the Hire-Purchase (Motor Vehicles) Regulations 2013, a car buyer has to make the minimum deposit amount that is 30% of the purchase price of the motor vehicle if the applicable value of the motor vehicle does not exceed $20,000. For purchase of a motor vehicle with an applicable value exceeding $20,000, the car buyer has to make the minimum deposit amount that is 40% of the purchase price of the motor vehicle.
Total Debt Servicing Ratio (TDSR)
In June 2013, MAS introduced the Total Debt Servicing Ratio (TDSR) to prevent individuals from being mired in debt. Under the TSDR framework, financial institutions have to ensure that the individual cannot spend more than 60% of their gross monthly income in repaying their debts.
The implication of this is that individuals might not be able to obtain a car loan if they have already committed more than 60% of their gross monthly income in repaying other loans. Conversely, if the individual has taken up a car loan that takes up 40% of the individual’s gross monthly income, it would mean that the financial institution can only grant a housing loan capped at 20% of the individual’s gross monthly income. For instance, if an individual earns $10,000 a month and spends $6,000 servicing his car loan, personal loan, and renovation loan, the financial institution will not be allowed to grant the individual a housing loan as it would exceed the 60% threshold of that individual.
Credit Score
It must be noted that the banks are not required to give the car buyer the maximum loan quantum even though the present regulations allows for the maximum of 70% and 60% based on the respective categories.
If the car purchaser has a poor credit score, the bank may lower the loan quantum to be given. More importantly, where the credit report reflects serious issues, such as a statement of default, the loan application may be rejected. Accordingly, it is important to build creditworthiness prior to taking a car loan.
There are various factors that will lower an individual’s credit score but the most common ones are:
- Late repayments on credit card charges;
- Multiple loan applications in a short span of time.
If you want to know your credit score, it can be obtained from the Credit Bureau of Singapore (CBS).
What If You Default on the Loan Repayment?
If you default on your loan repayment, the finance company has the right to repossess the vehicle. The Hire-Purchase Act sets out the notice requirement for the finance company to repossess the vehicle after necessary notice is given to the car owner. For more information on the various steps required, you can refer to our other article on “Repossession for failure to pay instalments in Singapore”.
There are numerous fees and charges involved in the purchase of a car in Singapore. Car buyers should therefore examine their personal finances, check whether they are eligible for a car loan and take into account all the extra charges involved before committing to the purchase of a car in Singapore.
What Happens to the Car after You Pass Away?
After obtaining your car, you can leave instructions in your will on who should inherit it after you have passed away. The new owner of the car can then apply to transfer ownership of the car to their own name.
For more information, read our other article on what happens to the car when its owner passes away.
Extracted from https://singaporelegaladvice.com/law-articles/buying-a-car-in-singapore-a-comprehensive-guide/