Buying A Second-Hand Car — What You Need To Know About COE And Insurance

Second-hand cars are an attractive option in the light of current high car ownership costs. Here’s what you need to know about COE and insurance for drivers buying a used car. 

Between record-high COEs and a surge in petrol costs, owning a car in Singapore will get even more expensive for quite some time to come. This is undoubtedly unwelcome for those who find themselves requiring a car, or who are looking to replace an ageing one.

While nothing beats the feeling of driving off in a brand new car (and that addictive new car smell), choosing a second-hand car instead will prove to be a more financially prudent choice, given the current circumstances. 

Here’s our guide to buying a second-hand car in Singapore, with a focus on how to manage the finances involved.

Pros and cons of buying a second-hand car

Pros of buying a second-hand car

The prime reason for most drivers to choose a pre-used car would undoubtedly be the significant savings to be had. For example, consider the following:

Source: *SGCarMart, ^SGCarMart

In this example, the newly launched Suzuki Swift Mild Hybrid costs nearly S$115,000 brand new. However, a similar model with eight years left in its COE will cost less than S$90,000. By opting for a car that is just two years old, you can save S$28,100, or 24.45% of the original price. 

Of course, a lot of that comes about because of depreciation. Using our example again, you can see the depreciation of the brand new Suzuki Swift is S$14,050 per year, or S$38.50 per day.

But what’s interesting is that the depreciation rate of brand new cars tends to be the most severe during the initial two years. Sure enough, when we look at the pre-used Suzuki Swift, its depreciation rate is listed at S$9,730 per year.

Hence, another major advantage of buying a second-hand car is that you can avoid high rates of depreciation.

The significant savings to be found by opting for pre-used cars extends to high-end and luxury car models too. This can make cars that are too expensive when brand new, a good bit more affordable in the second-hand market, making it easier for you to fulfil your dream of owning a flashy model.

Cons of buying a second-hand car

Of course, choosing to go with a second-hand car isn’t without its disadvantages. 

Perhaps the foremost one is that you may face additional servicing costs and repair charges, simply because the car comes with some wear and tear. However, whether this is simply a perception, or has some basis in reality, is still up for debate. 

Your mileage may vary in this aspect, especially since the longer the car has travelled, the higher the possibility of issues cropping up. Older models may also not have spare parts readily available, which could lead to delays and longer downtime. 

Having said that, note that you can ameliorate some of this risk by signing up for a more robust car insurance plan. Policies that do not restrict your choice of workshops may be particularly useful in this regard. 

Another possible disadvantage of buying a second-hand car is the possibility of being charged higher interest rates on your car loan. We say ‘possible’, because it depends on which financial institution you get your loan from — you’ll definitely want to compare among several providers for the lowest rate possible. 

COE when buying a second-hand car

Of course, you’ll need a Certificate of Entitlement (COE) in order to own a car in Singapore. COE has a maximum validity of 10 years, so how will this be handled when buying a second-hand car?

Basically there are two scenarios that can come up, as follows:

If car is less than 10 years old

If the car you are buying is less than 10 years old, you will inherit the remaining lease on the COE. Hence, there’s no need for you to bid for a new COE, and you simply need to acknowledge the transfer of ownership when appropriate. 

You will also inherit any rebates your second-hand car may still be entitled to. These include rebates for the Preferential Additional Registration Fee (PARF) and/or those given under the Off-Peak Car scheme. Additionally, any paid-up road tax from the previous owner will also be credited to you.

The PARF rebate is only credited when you deregister your vehicle. For reference, here is the schedule of PARF rebates you can expect. 

Source: OneMotoring

If the car is 10 years or older

If the pre-used car you have set your sights on has a registration date that is close to 10 years, you’ll need to renew the COE to continue your ownership of the car. 

Failing to renew the COE before it expires will result in the vehicle being deregistered and scrapped, so if the COE is expiring soon, it’s a good idea to act sooner rather than later. There is a grace period of one month after the expiry date, but at this point, you’ll be charged a late renewal fee.

COEs may be renewed for five or 10 years. A five-year renewal may be performed only once. After the five years have passed, your car will need to be deregistered and scrapped. There are no corresponding restrictions for 10-year renewals; you may do so as many times as you like. 

How much do you need to pay when renewing COE?

Oh joy, another obscure acronym to learn about!

As per the table, the amount you have to pay when renewing your COE depends on the duration of the renewal. For a 5-year renewal, you’ll need to pay 50% of the PQP, whereas a 10-year renewal will incur the full PQP amount. 

So what is PQP? That stands for Prevailing Quota Premium, which is simply the moving average of the COE prices for your vehicle’s category in the last three months. As such, the PQP varies monthly, as it is influenced by the movements in COE prices.

You can quickly check the current PQP here.

Insurance for second-hand cars

All drivers in Singapore are required to be covered by an adequate motor insurance policy. This is also required before your road tax may be renewed, and as such, the policy should cover the entire road tax renewal period. 

In order to be considered valid, a motor insurance policy must provide at a minimum third-party liability cover for deaths and bodily injury. This is so that any victims of traffic accidents can be covered by insurance. 

There are no specific insurance policies specially catered for second-hand cars, so you can take your pick from any motor insurance policy licensed for sale in Singapore.

Having said that, it’s important to consider the following when picking a motor insurance plan to go with your second-hand car.

• While third party liability for death and bodily injury is a core requirement, this benefit does not apply to your and your passengers - only the victims. Hence, it is a good idea to also have personal accident and/or hospitalisation and medical coverage for you and those who may ride in your car.
• Spare parts for older vehicles may only be available at specific workshops. To ensure all your repairs are covered, it may be worthwhile going with a plan that allows you to use a workshop of your choice, even if these plans usually cost more. 
• A second-hand car will likely not qualify for any new-for-old benefits, so don’t bother paying for any such add-ons. This benefit provides a brand new replacement in the case of total loss, but is usually only applicable to cars not older than 12 months.

Read these next:
5 Best Used Car Models and Brands to Buy in 2021
New Year, New Car: 7 Cheapest New Cars Under S$100,000 You Can Buy in Singapore 2022
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5 Tips To Save Big On Your Next Car Purchase