Win, lose or draw

My car started showing hesitation when moving off recently. In lay man language, it felt jerky. Brought the car to a garage and the problem was traced to faulty ignition coils and spark plugs, as pictured above.

Here’s the thing: I bought the spark plugs from Amazon about 2 years back. These were aggressive spark plugs that were supposed to improve power, which they did for my car. Unfortunately, it was likely too aggressive and may have damaged the ignition coils. So here’s the perennial lesson: in decision making, consider that there is always the possibility of a trade-off for your choice. In my case, I had no idea a high-power spark plug may affect the reliability of the ignition coil, but I learnt today that you can’t always win all the time.

Anyway, I will continue to source for automotive parts from Amazon. This truly helps me save bundles, and it really isn’t that difficult, even for a car idiot like me. Automotive spare parts do cost an arm and a leg, especially when you look like a car idiot.

Car Depreciation Calculator Launched

This comes about 2 years later than promised, but better late than never. The “spreadsheet” for calculating car depreciation is finally ready. Check it out! If you have any feedback, leave a comment in this posting, thanks!

Honda Jazz 2009 Update Review

Time for a report card after 2 months of driving the Jazz. The mileage did not improve very much, sad to say, averaging 13.5 km/l, and this is with rather careful driving and deliberate effort not to rev up the engine too much. I still think this will improve over time, hopefully hitting 14 km/l within the next few months.

Some tips on mileage improvement – use the paddle shift. In the first and second gear, i found it appropriate to shift up to the next gear when the engine hits 2.2k rpm. From first to second gear, apply pressure on the accelerator to maintain 1.8k rpm and above to avoid losing a lot of power.

One thing i found annoying was when going up a long slope, the auto transmission shifts up from third to fourth gear too early, resulting in loss of power before the slope is overcome. Might have to experiment with down shifting the gear.

For more tips on improving mileage, check out this article. Know your car, know your route.

Car Loan Redemption Penalty

When signing up a car loan, typically you are subjected to a redemption penalty if you choose to redeem the loan before maturity. The redemption penalty is calculated based on the method of Rule of 78.

If you are interested in just getting a quick feel of how much redemption penalty you will have to pay on your car loan, skip to paragraph 5. Read on if you are interested in more background information.

According to the wikipedia entry on Rule of 78, apparently the number 78 might have come from the sum of numbers 1 to 12 (i.e. 1 + 2 + “¦ + 11 + 12 = 78). This method of calculating interest came about to simplify the calculation of the unearned portion of a loan’s interest in the pre-computer era, and continues to be used today for precomputed loans whereby the total interest chargeable on a loan is calculated and fixed before the loan is made, which is how car loans are made.

Here is how the rule of 78 works in a car loan. The rebate on unearned interest is calculated as:

RuleOf78

where n is the remaining number of months for the loan and N is the total number of months the loan period spans. The total interest is the interest rate multiplied by number of years of loan multiplied by loan amount.

This means that the loan redemption penalty is calculated as the remaining interest to be paid minus the rebate on unearned interest, which is as follows:

RedemptionPenalty

Applying this formula, the following tables are derived showing the percentage of the total interest that will be charged as redemption penalty at the end of each year for 10, 7 and 5 years loan respectively.

Yr 1 25.1%
Yr 2 28.7%
Yr 3 30.6%
Yr 4 31.0%
Yr 5 29.8%
Yr 6 27.0%
Yr 7 22.6%
Yr 8 16.7%
Yr 9 9.1%
Yr 10 0%

Yr 1 26.8%
Yr 2 30.4%
Yr 3 30.8%
Yr 4 27.9%
Yr 5 21.8%
Yr 6 12.5%
Yr 7 0%

Yr 1 28.6%
Yr 2 30.9%
Yr 3 26.9%
Yr 4 16.6%
Yr 5 0%

As you can see, the redemption penalty is steep. Worse still, it doesn’t reward you for staying on longer with the loan. The bank and car sales agent is guaranteed to earn a commission of close to 30% of the total loan interest the moment you sign on the dotted line. Go figure.

Calculating car depreciation

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