More small car owners renewing COEs

THE number of people revalidating the certificate of entitlement (COE) of their ageing small cars hit a high last month. But those who are doing so are mostly going for the cheaper option - extending their right to continue driving their cars for only five more years, instead of 10.

The Land Transport Authority says that 285 Category A cars (those with engines below 1,600 cc) had their COEs revalidated in March for five years.

Among Cat B cars (those with engines of more than 1,600 cc), 118 had their COEs revalidated that month for that length of time.

Only 52 cars in Cat A had their COEs renewed for 10 years; in Cat B, the number was 70.

Owners of cars which are nearing their 10-year COE lifespan may extend the COE for a further five or 10 years before the COE expiry date by paying the prevailing quota premium or PQP, which is the moving average of the COE premiums in the preceding three months.

Renewing the COE for five years means paying only half the PQP, which is now S$62,721 for Cat A and S$71,730 for Cat B cars.

But the difference is that unlike the 10-year COE, the five-year COE is non-renewable, meaning the car has to be deregistered upon its expiry.

The sales manager of a mass market dealership said that he was not surprised by the spike in COE revalidations. "There are more and more people with cars reaching 10 years of age, and those who own smaller and cheaper cars are most likely to be those who - even if they beg, borrow or steal - will not be able to come up with the 40 per cent cash downpayment for a new car."

Under the vehicle-financing rules, a 40 per cent cash downpayment is mandatory if the open market value (OMV) of the new car is below S$20,000, and 50 per cent if the OMV is above S$20,000.

The sales manager said: "The Cat A PQP for five years is about S$31,500, which is lower than the downpayment for the cheapest decent mass market car of more than S$100,000.

"Even if you add the Parf rebate, it will still be less than the 40 per cent you require."

The Parf rebate, commonly known as scrap value, refers to the preferential additional registration fee. Deregistering a car that is above nine years but below 10 nets a Parf rebate that is 50 per cent of the ARF (additional registration fee) paid. In the case of an old mass-market Cat A model, this is generally about S$6,000 to S$7,000.

The sales manager said: "By paying the PQP, you also do not have to take a car loan with a monthly instalment to service. So revalidating the COE would appear to be a less expensive way to continue driving a car."

But those who renew the COE of their 10-year-old cars have to consider a few important factors, he cautioned.

One is that the road tax for cars older than 10 years of age goes up by 10 per cent each year until it reaches a maximum of 50 per cent.

Another consideration is that the insurance coverage is limited to that for third-party fire and theft; comprehensive-coverage policies are not extended to such cars.

But perhaps the most important issue is the condition of the 10-year-old car. "Those who renew their COEs usually have cars with lower mileage that are still running well," said the sales manager. "Because with an older vehicle, you usually have to spend more money on maintenance and repairs."

This article was first published on April 22, 2015.
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