Wife requires new vehicle to travel to and from work.
She is required to travel between Singapore and Malaysia daily. There is a large difference in price between Singapore vehicles and Malaysian vehicles however Malaysian cars are imposed a high entry tax by Singapore government meaning higher daily running costs
Leasing or rental of a vehicle offers certain convenience however monthly cost is also high. At the moment, she lease’s (rent) a Singapore registered vehicle to avoid paying high daily entry (VEP) taxes.
A comparison of cost is now required between leasing and buying a vehicle to determine if purchasing a vehicle is more economical from both a short and long term perspective.
Purchase options 4 alternatives with each containing its own advantages and disadvantages i.e high purchase prices for Singapore registered cars but low finance and high resale value compared to Malaysian vehicles which have low purchase prices but higher finance rates and running costs as well as lower resale values.
This blog will determine whether purchasing a vehicle is better financially than leasing based on a 5 year period. If will also consider which purchase option is best.
The following alternatives will be considered
- Leasing of Singapore registered Vehicle
- Leasing of Malaysian registered Vehicle
- Purchasing New Malaysian registered vehicle
- Purchasing Used Malaysian registered Vehicle
- Purchasing New Singapore registered Vehicle
- Purchasing Used Singapore registered Vehicle
Development of the Alternatives
Figures and valuations will be based on the same (or equivalent) vehicle type and all values will be assessed using Ringgit as the currency.
A time frame of 5 years will be used to assess the alternatives with partial financing. Minimum Deposit requirements, loan terms and interest rates all vary between Singapore and Malaysia.
Refer to the Following table which outlines the vehicle values, finance terms, etc
An MARR of 6% will be used in the assessment of each option as this represents an equivalent interest rate for alternative investments or loan rates where funds could be otherwise be used to reduce ongoing interest charges.
Leasing options do not carrying any operating costs associated with insurance, road tax,etc and obviously carry no resale or residual value at the end of hire
Purchase options for new and used Malaysian registered vehicles are based on a higher minimum deposit percentage as well as a finance on balance. Term of loan for Foreigners is limited to 1 year meaning that the rate of repayment is very high. Resale / residual values are based on current MV for v ehicles on similar age
Purchase options for Singapore vehicle
Final Selection of the preferred alternative will be based on the following
- Lowest overall cost considering all factors such as annual operating costs, financing as expected resale or salvage values expected at the end of the study period. This will be expressed as a present worth with costs considered as negative cash outflows. Thus the PW value which is highest or least negative will be regarded as most preferred.
- Equivalent Uniform Annual Cost (EUAC). We will also consider the EUAC which reflects
Comparison of Alternatives
The Present Worth of each option is as follows
From the table, Option 5 has the highest present worth. This is surprising given the value of the car is almost 4 times the price of the same vehicle in Malaysia
As can be seen in the above table, whilst depreciation rates are higher, the MV after 5 years is significantly higher than Malaysian vehicles and do not suffer the same level of annual cost when considering government imposed taxes on foreign vehicles
The EUAC of each option is as follows
Again, option 5 provides the minimum (lowest) uniform annual cost over nominated economic life span. Again, this appears to be influenced be the following factors
- Lower interest rates and longer loan terms
- High resale values available at the end of the period
- Capital recovery is actually lower for Singapore cars due to lower deposit requirements i.e. RM89k v RM145k for new vehicle capital investment in year 1. This means that less upfront capital is required in the first 1 year. values not considered excessively more despite the value of the vehicle being multiples more than local equivalent.
Selection of Alternative
From the above, Option 5 (Purchase New Singapore vehicle) has satisfied both selection criteria with highest Present Worth and Lowest EUAC confirming that purchasing a new car from Singapore will result in the least overall cost overall as well as an annual basis.
This result has been surprising and was not expected!!!
Current practice of renting a vehicle needs to stopped as soon as possible.
Before finalising the selection, the following factors must be further researched;
- Resale value of Singapore vehicles
- Available Singapore interest rates
- Currency fluctuations
- Maintenance costs
Using Option 5 as the preferred option, the Economic life of the vehicle should be established. In the above example, 5 years may actually be past the maximum time for retention of the asset.
- Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 4 – The Time Value of Money, pp.427-466. Prentice Hall.
- W10_UDS_Replacement Analysis: Keep Old Car or Buy New Car retrieved from http://emeraldaace2017.com/2017/10/11/w10_uds_replacem…r-or-buy-new-car
- Singapore Car resale values retrieved from http://www.sgcarmart.com/main/index.php
- Malaysian Car Resale Values retrieved from https://www.carlist.my/
- Singapore Vehicle Entry Tax regulations retrieved from https://www.lta.gov.sg/…singapore/vehicle-entry-permit-vep-fees-toll-charge-and-reci…