How to Calculate the Scrap Value of a Car
In Singapore, cars are notoriously expensive. The moment you drive your new car out of the showroom is when your car value depreciates and reaches its scrap value upon reaching its 10-year mark. By understanding how a car depreciates allows owners and buyers to gauge how much their car is worth. This is extremely useful when you want to sell your car and also when buying a new car.
Here is how the annual depreciation of a car is calculated:
Annual Car Value Depreciation = (Total cost of vehicle – sale value of the vehicle)/Number of Years in Service
With this, you will have a better grasp of the car value.
When buying a brand-new car and intending to own it for 10 years
If you intend on buying and owning a car for ten years before deregistering it, the scrap value of the car at year 10 will be 50% of your Additional Registration Fee (ARF). This is also known as your Preferential Additional Registration Fee (PARF) rebate. You also receive the COE rebate, but since you are deregistering after ten years, there is no CEO value left.
The ARF is calculated based on the Open Market Value (OMV) of the car as assessed by Singapore Customs. It uses the following formula.
The PARF rebate can be considered as your scrap value at that point in time since there is no COE value left after ten years.
In Singapore, the cost of a car comprises many factors. These include the OMV, ARF, GST, Registration Fees, Vehicular Emission Scheme (VES) Surcharge (if any), dealer markup and COE. So, a car with an OMV of $30,000 can cost $150,000 or more.
With a sales price of $150,000 and a scrap value of $20,000 after 10 years, this means your annual depreciation would be $13,000 [($150,000 – $20,000)/10].
Hence, if you are buying a car, it is worth noting that while factors such as OMV, ARF, and COE do have a significant impact on the sales price of a car, an increase in any of these variables does not necessarily mean the sales price of cars has to go up. Likewise, a decrease in sales prices does not necessarily translate into any of these cost factors going down.
If you’re fresh to car ownership or want to learn more about second-hand car purchasing, check out our Buying, Owning, Driving, and Selling a Car in Singapore Course.
Tips on Buying Used Car
It is important to look out for ARF value and PARF value if they are proportionally correct (PARF value = 50% of ARF value). If it is not correct, there may spell trouble when you are scrapping the car at its 10-year mark
If you are buying a used car, the maintenance records are another important thing to note as they show how much care and maintenance the previous owner has given the car. Please note if the maintenance is done by a car agent or third-party workshop. The car agent will do car maintenance according to the standard check procedure whereas third-party workshops will most likely just fix only the problem and not do a thorough check.
This will determine the operational value of the car and how much maintenance costs are to be factored in above the purchase value of the car. Hence it is essential to do proper maintenance to maintain the health and operational readiness of the car.
If you’re excited to begin taking greater charge over the care and maintenance of your car and want to learn more in-depth knowledge, take a look at our Basic Car Maintenance for Everyone course.
What Happens To The Scrap Value/PARF Rebate If You Renew Your COE After 10 Years?
If you renew your COE after ten years, you immediately lose the PARF value rebate. In addition, you will have to pay the Prevailing Quota Premiums (PQP).
If your PARF value rebate is $20,000 and a new COE costs you $60,000, the COE renewal would actually be costing you $80,000. This means that your depreciation for the next 10 years for the car would be 8,000 per year. The other way to think about this is that choosing to renew the car COE after 10 years won’t just cost you the COE price, but also the PARF Value – since this is an amount that you would forfeit for extending the COE. If you extend the COE for 5 years only, you also lose the PARF Value.
