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What is car depreciation, and how does that affect or change a car's value? We break down everything you need to know.
Category: Car Buying Advice
Depreciation is defined as 'the reduction in the value of an asset over time'.
Cars in Singapore are notoriously expensive, yes. However, what actually makes it so 'expensive' is the fact that any car's value reduces significantly over a 10 year period - i.e. high depreciation.
If you in fact buy a car for $100,000, and then sell it off after 10 years for $90,000, you probably wouldn't then consider it to be really expensive, considering you only lose $10,000 in value over 10 years. However, in Singapore you can easily be looking at a depreciation value of $10,000 a year for a brand new car.
Depreciation and your car's 'value'
Therefore, a car's depreciation figure is often equated to its so-called value. Simply put, for most people, a 'low-depre car' is considered more financially worthwhile to own over a 'high-depre' car.
But, how do you calculate the depreciation of a vehicle? You start by understanding the deregistration value of your car.
Deregistration value of your car
Put simply, the deregistration value of a vehicle is how much money you will get back when you deregister a vehicle. It is often also referred to as 'paper value'.
First, there are a few terms that need defining and explaining. The Additional Registration Fee (ARF) is a tax that is imposed on all cars, as is calculated as a percentage of a vehicles Open Market Value (OMV) using the following formula:
|Vehicle OMV||ARF Rate (% of OMV to pay)|
If you deregister your vehicle within the first 10 years, you are entitled to a Preferential Additional Registration Fee (PARF) rebate, based off a percentage of your ARF value.
|Age of vehicle at deregistration||PARF rebate (COE May 2002 onwards)|
|Not exceeding expectations 5 years||75% of ARF paid|
|Above 5 years but not exceeding 6 years||70% of ARF paid|
|Above 6 years but not exceeding 7 years||65% of ARF paid|
|Above 7 years but not exceeding 8 years||60% of ARF paid|
|Above 8 years but not exceeding 9 years||55% of ARF paid|
|Above 9 years but not exceeding 10 years||50% of ARF paid|
|Above 10 years||NA|
For cars older than 10 years (meaning cars with renewed COEs), you will not receive any PARF rebate when the vehicle is deregistered.
Additionally, when you deregister your vehicle, you may also receive a COE rebate. This is basically a rebate for the unused duration of your vehicle's COE. It is calculated as such:
COE rebate = [Quota Premium Paid x Number of months left] / 120 months
A vehicle's deregistration value is thus the sum of the PARF and COE rebates.
Deregistration value = [COE rebate + PARF rebate]