How to Determine the Diminished Value of a Car in Singapore?
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You probably know that the moment you buy and drive a car out of the dealer’s parking lot, it depreciates each year by 15 to 20 percent. This article explains how you can determine the diminished value of your car in easy to follow steps. We will begin by explaining what “diminished value” is and the various types of diminished value.
What Is Diminished Value?
Diminished Value is simply the difference between the cost of your car after it has been in use and is put up for sale. Insurance companies globally have different ways of calculating this figure.
There are two criterias that determine the diminishing value of a car.
- The annual depreciation value of your car
- The open market value of your car (OMV)
These two are interrelated but are still distinct where your car’s diminishing value is concerned. We discuss them further, below.
The Annual Depreciation Value (ADV) for Buying A New or Used Car
As a car owner, you must know the ADV of the car. We’ve shared three formulas that can calculate the annual depreciation value of a car;
Annual Depreciation = (Total Cost of Vehicle – Sale Value of Vehicle) / Number of Years in Service.
A quick example of ADV in action:
A vehicle’s total cost is S$10,000. They sold it for $2,000 after ten years. That is:
S$10,000 – S$2,000 /10 = S$800.
The annual depreciation value of the car is S$800.
Another formula to calculate the annual depreciation value of a car is:
Annual depreciation = [Sale Price – Deregistration value] / Remaining years of COE.
For this formula, we have to first find out the value of deregistration.
We calculate the deregistration of a vehicle by summing up the Preferential Additional Registration Fee (PARF) AND Certificate of Entitlement (COE) rebates. Deregistration value= [COE rebate + PARF rebate].
We’ll explain how the PARF rebate is determined, later in this article.
The COE Rebate: The formula for calculating the COE rebate is [Quota Premium Paid x Number of Months Paid] /120 months.
The Monetary Authority of Singapore (MAS) also has a formula for calculating the Annual Depreciation Value of Used Motor Vehicles. The formula is:
OMV – [Age of motor vehicle (in months)/120 months x OMV].
For example, a car that is imported into Singapore was first registered on the 1st of January 2010. Its Open Market Value (OMV) is S$25,000. A buyer purchased it on the 10th of February 2013. The age of the car at the time of purchase was 37 months.
To find applicable OMV = 25,000 – [37/120 x 25,000] = S$17,292.
But calculating the annual depreciation value of the car is a little more complicated than that. Some criterias below, determine the total cost of a vehicle.
- Certificate of Entitlement (COE)
- Open Market Value (OMV)
- Registration Fee (RF) and Additional Registration Fee (ARF)
- Preferential Additional Registration Fee (PARF) Value
Let’s look at each of them briefly.
1. Certificate of Entitlement
The COE is an important part of the Vehicle Quota System (VQS) that requires car owners the right to have a vehicle. They auction the COEs out to the highest bidder; because there is high demand for car ownership and how high bidding has gone up over the years. COEs have become very expensive. There are two rounds of COE auctions each month.
In November 2020, a vehicle that is 1600cc and below the monthly average COE will cost S$36,840. A car that is 1600cc and above is S$40,050. The COE is valid for ten years, and the owner can decide to renew the COE based on the current prices or scrap the vehicle.
2. Open Market Value
The Singapore Customs determines the value of the car when it is imported into the country. This includes the price, freight, and insurance. All surcharges that were incurred in importing the car. It does not include taxes, or other surcharges like COE, dealer’s profit, and the registration fee. Some websites give an estimate of the OMV of your car. They are: Orangebookvalue.sg and Sgcarmart.com.
3. Registration Fee (RF) and Additional Registration Fee (ARF)
This is a compulsory payment on your car when you register it. The flat rate for the RF is S$140.
The ARF is for vehicles registered with COEs, and they base it on the OMV of the automobile. It can range from 100% to 180% of your car’s value. The ARF (and COE) are the reasons car ownership is very expensive in Singapore.
For example, the OMV value of a car is S$20,000. The ARF fee will be 100% of the OMV.
While a car that is between S$20,001 to S$50,000, its ARF will be $140% of the OMV. Any OMV that is about S$50,001, has a ARF of 180%.
4. The Preferential Additional Registration Fee (PARF)
This is a rebate given to the car owner. He/she will get a PARF rebate as high as 75% of the AR, for a car that is 5 years or less and can go as low as 50% for a car that is 9 – 10 years old. All these factors contribute to the “total cost of a vehicle.”
What Is the Value of a Car After An Accident?
Simple answer is: it’s a lot lower. As we mentioned before, a car’s value depreciates immediately when it leaves the showroom. And as the years go by, it diminishes even more. No matter how well a job is done to restore your car back to looking new, as long as it has an accident history the open market value will be about 10 to 25 percent lower compared to other cars that are of the same model and year and are on the market.
Also, the extent of the repairs done on the car or the quality of work done on the car will determine how high or low the depreciation value of your car is.
What is the importance of all this information? Having the knowledge of how much your vehicle costs will help you aid your decision in determining your next course of action as an owner (seller) or a buyer.
Your car insurance company most likely has a method of calculating the depreciation value of your vehicle after an accident. Besides that, it’s important to note that the value of the car is not the leading factor in the year to year cost of its insurance. Almost all insurance claims are not for the full replacement value of the car. Most claims are to repair the car. Car repairs (labour and parts) do not go down each year – on the contrary, they usually go up with inflation. So while your car may depreciate in value, the cost of fixing it does not.
No doubt, the best way to avoid accidents and slow down the depreciation value of your car is by driving safely, and avoiding conditions that are not safe enough to drive in. Because as you have learnt, accidents reduce the market value of your car significantly. Do you have any questions related to car insurance? Call us on 6665 5555 or send us an email.