How much income do you need to afford a car in Singapore?

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by Valuepenguin.sg

While Singapore is the most expensive country in the world to own a car, that doesn't stop many of us from dreaming of having one of our own. But how much money do you actually have to make to be able to afford to own a car in Singapore?

The ValuePenguin team did an in-depth study of the costs associated with buying and owning a Honda HR-V, one of the most popular cars in Singapore, to help you get a better idea of just how much income you'll need to have to make those dreams a reality.

How Much Can You Borrow?

The many costs associated with car ownership make Singapore the most expensive country to own a car in the world. As a result, most Singaporeans interested in buying a car find themselves needing to take out a loan to be able to afford one. To figure out how much income you'll need to comfortably afford a car, you should first understand the legal parameters that regulate how much you can borrow to pay for it.

First, the Monetary Authority of Singapore regulates how much of the total cost of a car you are allowed to finance through a loan. For cars with an Open Market Value (OMV) of over S$20,000, you may only borrow up to a maximum of 60% of the total purchase price of the car (which includes the cost of COE, etc.). For cars with an OMV of S$20,000 or less, you may borrow up to 70% of the total purchase price of the vehicle.

Singapore also imposes limits on the maximum amount of your income that you can spend repaying your various debts through its Total Debt Servicing Ratio rules. Your total monthly repayments for all of your debts, including not only car loans but also personal loans, credit card debt, your mortgage, student loans, etc., may not exceed 60% of your gross monthly income. While in theory this means you could allocate up to 60% of your gross monthly income to paying off your car loan, it is neither advisable nor plausible since you will likely have to have other forms of debt.

Finally, the MAS restricts how long you can take to pay back your car loan. You are permitted to spread the repayment of your loan over a maximum of 7 years. Keep in mind that as you pay off your loan, you will also need to pay interest.

How Much Does it Cost?

So how much money do you actually need to make to afford a car in Singapore, given the assorted costs of vehicle ownership and car loan regulations? To help give you an idea, we broke down the approximate yearly cost of ownership of a brand-new 1.5 Honda HR-V DX as of February 2017. After that, we calculated how much you'll need to spend on a monthly and annual basis to pay off your loan.

The Honda HR-V

Cost of Purchasing a Honda HR-V

For the purpose of this case study, we assume the purchase price of a Honda HR-V to be S$107,999, the price quoted on the pricelists provided by its authorised distributor, Kah Motor, in February 2017.

The following table shows the various costs that factor into the average purchase price of a 1.5 Honda HR-V DX registered in February 2017, based on data published by ONE.MOTORING. While the quoted selling price from authorised distributors available on pricelists often significantly exceeds the total basic price of the vehicle reflected, this cost breakdown serves to illustrate what you're actually paying for.

Average OMV S$20,372
GST & Excise Duty S$5,786
Registration Fee S$140
Additional Registration Fee (ARF) S$20,521
CEVS (Rebate)/Surcharge (S$5,000)
COE (February 2017 1st Bidding Period) S$48,401
Total Basic Cost S$90,220
Selling Price Quoted by Authorised Distributor (Kah Motor) S$107,999

Recurring costs of HR-V ownership

Here's how much you might expect to pay in additional costs on top of the cost of purchasing your Honda HR-V.

  • Car Insurance: Based on a ValuePenguin study, the average cost to insure a new Honda HR-V for a 30-year-old male with 2 years' driving experience and 0% NCD is about S$1,819 a year.
  • Car Maintenance: Another ValuePenguin study of car maintenance costs in Singapore showed that the cost of biannual maintenance for a Honda HR-V would cost an average of S$565 per year.
  • Road Tax:This Honda HR-V model has an engine capacity of 1,487 cc and is fuelled by petrol. As such, it would be subject to a road tax of about S$684 per year.
  • Petrol:In terms of fuel economy, it gets an average of 17.5 km per liter of petrol. In 2014, the average Singaporean car owner drove 17,500 kilometers. Assuming you fit the profile of the average driver, you'd need to pay for 1,000 liters of petrol over the course of one year. Based on current petrol prices in Singapore (S$2.06/liter in April 2017), this would run you S$2,060 per year.

Based on these estimations, the total cost of ownership of a new Honda HR-V over the course of 1 year would be S$113,127, plus whatever you pay in road tolls under the ERP system and parking fees, which will vary depending on your driving patterns. After the first year, you'll need to spend at least S$5,128 per year (or S$427 per month) on road tax, petrol, insurance costs, and maintenance fees, not including ERP tolls and parking costs.

Paying Down the Car Loan on a Honda HR-V

Let's take a look at how much you'd need to set aside in loan repayments to finish paying off your car. As the HR-V has an OMV over S$20,000, you can take out a maximum of 60% of the total purchasing price of the car, or about S$64,799.40, in loans. In this scenario, you'd need to come up with the remainder of about S$43,199.60 on your own.

You'll need to pay interest each year on the principal as you pay off your loan. Let's assume an annual interest rate of 2.18% based on our analysis of the best car loans in Singapore in 2017 which shows that at 2.18% a year, DBS currently offers the lowest interest rate on new car loan repayments in Singapore. Given a 2.18% interest rate, if you took out 60% of the total car cost in loans, you'll need to pay S$1,412.63 per year in interest. As you can only take up to a maximum of 7 years to pay off your car loan in Singapore, you would need to be able to allocate a total of S$10,669.68 a year toward repayment including interest, or S$889.14 a month.

It's also important to keep in mind that Singapore law requires that you spend no more than 60% of your monthly income on debt repayment. Many Singaporeans have to balance car loan repayments with other significant sources of debt they are paying off each month, including home loans, credit card balances, student loans, and personal loans.

Affording a Honda HR-V

How much does one need to make every year to buy a HR-V? According to the household expenditure survey done by the Singaporean government, an average person spends about S$2,500 per month on her living expenditures. Therefore, we calculated how much one would have to make in order to have that much discretionary income after servicing a car loan and a home loan, assuming the person has no other kind of loan.

According to our calculation, the annual repayment on a car loan of S$64,799 at 2.18% interest rate and a home loan of S$600,000 at 1% interest rate adds up to S$2,819 monthly, or S$33,828 annually. This means that in order to have S$2,500 left over after making the debt repayment, one would have to make about S$5,300 per month, or about S$64,000 per year. Although TDSR on this loan is still 53%, below the required limit of 60%, borrowing more money without a higher income would result in a considerably lower quality of life.

Let's consider another scenario where you make the median income in Singapore of about S$48,762 annually, or S$4,056 a month. Based on our calculations, if you were paying off a home loan like the one mentioned above, borrowing the maximum amount possible to finance a new HR-V would commit you to spending 70% of your monthly income on debt repayments--which is not permitted by the MAS. If you were to spend S$1,000 a month on rent, you would spend S$1,889.14 a month, or about S$23,000 a year, on rent and car loan repayments. This means you would have S$2,166.86 a month, or about S$26,000 a year, left over after rent and car loan repayments.

This article was first published at Valuepenguin, "How Much Income Do You Need to Afford a Car in Singapore?"