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Upon the decision to renew the COE of your car, one of the first things that you need to decide on is whether you should renew it for 5 years or 10 years. It may be a tough decision to decide as you contemplate for days and sleepless nights. Factors such as cash rebates and condition of the car could affect you in the upcoming years. But don't worry! As we bring you 4 key factors that should be taken into consideration and guide you into making the right decision, so you would not experience any regrets in the near future.
1. Forfeited Cash Rebates
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First and foremost, you should be aware that at the point of COE renewal, the PARF and COE rebates for your car will be forfeited. The Prevailing Additional Registration Fee (PARF), depreciates as the years go by, until it reaches the minimum PARF value and then it will halt its depreciation. As seen from the figures above, owners of cars aged 9 to 10 years will be returned 50% of what they paid for ARF. But wait! This rebate is only applicable if your car is less than 10 years old.
COE rebate on the other hand depreciates by the days that you use the car. If you used the car for the full 10 years till its last COE expiry date, you will not get back any COE rebate. Contrary to the PARF rebate, COE rebate do not have a minimum value. Thus it will depreciate till zero.
As mentioned, once COE is renewed, the PARF rebate, and the COE rebate (if any) will be forfeited. This forfeit is usually added on as part of the cost of renewing COE. Therefore, based on car depreciation, it is generally better to renew COE for 10 years, compared to 5 years, as this cost can be depreciated for a longer period of time. In other words, lower depreciation means you are spending less each year for your car.
2. Prevailing Quota Premium
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PQP, not the COE, is the amount you pay to renew your COE. The Prevailing Quota Premium (PQP), is the moving average of the COE prices (QP) in the last 3 months. Let us clear the air that the PQP is not equivalent to the COE prices that is revised twice every month. The results will affect the PQP but it is not the same thing.
Let's take the recent COE prices as an example. Category A COE prices for the 2nd bidding of September is $42,902. This does not mean that the PQP is the same amount. Instead, the COE price affected the PQP and caused it to decrease from $44,000 to $42,000. As PQP is the average of the COE prices for past 3 months, each QP for the month contributes to the result of the PQP, which is the price you need to observe when you renew your COE.
For a 5-year renewal, you will need to pay 50% of the Prevailing Quota Premium (PQP) while for the 10-year renewal, you will need to pay the full amount of PQP. This is the amount of money you will need pay to renew for your COE. Renewing for 10 years, means paying a bigger amount upfront, which also means you will incur more interest if you are taking a COE renewal loan.
3. Condition Of The Car
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Thirdly, the condition of your car is another key factor to take into consideration. The last thing you would want is the car to exhale its last breath a day after you renewed its COE! Head down to the nearest workshop to do a thorough inspection on your vehicle and get reliable advice on the life-span of the car so that you won't be spending absurd amount of money to maintain your car in the future.
Something to know is that the older the car gets, the more challenging and expensive it gets to obtain it's spare parts. Industries make way for newer spare parts for newer vehicles, at more with the Euro 6 standards kicking in. This can be prevented by getting your car inspected and change all the necessary parts for it to stay running for the next 5 years or so before you renew your COE. As the saying goes, it's better to be safe than sorry.
4. Is This Car Your Family Heirloom?
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There is one main difference between renewing for 5 years and 10 years. Renewing the COE for 10 years allows you to renew it again at the end of the second decade. On the other hand, the car is obliged to be de-registered by Land Transport Authority at the end of the 5-year renewal period. There is no way that you could renew a car's COE after a 5-year renewal.
Thus, if the car brings sentimental value to your life and you plan to keep it till it's considered a classic car, then do renew its COE for 10-years. This will allow you to keep renewing the COE for next few decades. But if you're willing to let go of your car to get a new one in the coming future, renewing its COE for 5 years can be a consideration.
5. Additional Loading On Road Tax
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One of the downside of renewing your COE is that you have a road tax increment of 10% every year, up to a maximum of 50%. Which means, if your road tax is $1000 this year, it will be $1,100 next year and $1,200 on the subsequent year. It will finally be capped at $1,500/year from the 5th year onwards. This could add up to quite a significant amount, especially if you are driving bigger cars. For a typical Cat B car (Cars above 1600cc or 130bhp), the original road tax of $1,214/year would become $1,821 by the 5th year. This will add up to an whooping $3,035 extra in road tax payment just from year 5 to year 10 of your car's renewed COE!
In A Nutshell
To conclude, renewing your COE will forfeit your PARF and COE rebates. If depreciation is your main concern, it is better to get a 10-year renewal as the depreciation value will usually be lower than getting a 5-year renewal.
5-year renewal only require payment for half the PQP while a 10-year renewal requires you to pay for the full amount. If you have difficulty paying a large upfront payment, or wish to avoid incurring interest from taking up bigger loans, a 5-year renewal may probably be a better choice.
The condition of the car also plays a part as you would not want to be in a situation whereby you have to fork out a lump some of money just to keep the car running for the next couple of years. Inspecting your car before renewal is strongly advised to get the green light from your mechanic that the machine is able to survive for the upcoming years.
In terms of road tax, your road tax will be 150% of it's original amount by it's 15th year. This is an unavoidable cost, that should be factored in when making your comparison.
If you are planning to keep the car for three decades or more, your only choice is to get the 10-year renewal now, and then renew again when this new COE expires. And finally, if you want to keep the yearly cost of maintaining your car to be as low as possible, renewing it for 10 year is also the better choice, as it means
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