When is a good time to change your car (in the Singapore context)? That is a question that begs understanding for all cost conscious car owners. The short answer is: when the depreciation rate of your car starts to plateau, and the next car does not impose a high depreciation rate.
You say, wait a minute, isn’t the depreciation of a car a fixed value – car price at point of buying minus car price at point of selling divided by number of years? This simple formula may be good enough if you paid for the car in full with cash. However, most people finance the car purchase with a loan, and the loan interest as well as redemption penalty becomes a significant factor which adds to the cost of ownership or depreciation of the car.
Here is how i work out the depreciation of my car. First, a listing of all the relevant parameters:
- Car price – 57000
- Loan amount – 55000
- Interest rate – 2.35%
- Loan period – 96 months
- OMV – 19038
- COE – 13801
Next, some estimated parameters:
- Beginning body value – 16000
- Body value at 10 years – 3000
- Cost of maintenance (see table below)
With these parameters, i derive the following table showing the car depreciation which accounts for the loan interest, loan redemption penalty as well as maintenance cost (running costs such as insurance and petrol are excluded):
| Yr | COE Rebate | PARF Rebate | Paper Value | Body Value | Total Value | Interest Paid + Redemption Penalty | Mainte- nance | Depreciation (Loss/Year) |
| 1 | 12,420.90 | 14,278.50 | 26,699.40 | 14700 | 41,399.40 | 3,997.42 | 600 | 20,198.02 |
| 2 | 11,040.80 | 14,278.50 | 25,319.30 | 13400 | 38,719.30 | 5,671.01 | 300 | 12,125.86 |
| 3 | 9,660.70 | 14,278.50 | 23,939.20 | 12100 | 36,039.20 | 7,088.76 | 400 | 9,483.19 |
| 4 | 8,280.60 | 14,278.50 | 22,559.10 | 10800 | 33,359.10 | 8,250.68 | 500 | 8,097.90 |
| 5 | 6,900.50 | 14,278.50 | 21,179.00 | 9500 | 30,679.00 | 9,156.76 | 400 | 7,175.55 |
| 6 | 5,520.40 | 13,326.60 | 18,847.00 | 8200 | 27,047.00 | 9,807.01 | 400 | 6,693.34 |
| 7 | 4,140.30 | 12,374.70 | 16,515.00 | 6900 | 23,415.00 | 10,201.42 | 400 | 6,312.35 |
| 8 | 2,760.20 | 11,422.80 | 14,183.00 | 5600 | 19,783.00 | 10,340.00 | 400 | 5,994.63 |
| 9 | 1,380.10 | 10,470.90 | 11,851.00 | 4300 | 16,151.00 | 10,340.00 | 300 | 5,721.00 |
| 10 | 0 | 9,519.00 | 9,519.00 | 3000 | 12,519.00 | 10,340.00 | 300 | 5,512.10 |
Plotting the depreciation in a chart:
As you can see, the rate of depreciation is the highest in the first few years, meaning you lose the most money when you sell you car within the first few years. When you get to the third or fourth year, the loss from selling the car becomes more acceptable.
Of course, whether it makes sense to get the next car also depends on the cost of COE at that time, or even the car technology which may help you save fuel costs.
Are you interested in calculating your car depreciation? The spreadsheet for calculating car depreciation will be put up as soon as it is ready.
Update: the spreadsheet is now ready!
Update 14 Mar 2015: the spreadsheet is no longer maintained
