Coe Premiums in Singapore Are Rising. Should You Lease a Car?

This was originally posted in Planner Bee.

In Singapore, owning a car is a luxury that comes with an eye watering price tag. The Certificate of Entitlement (COE) system, introduced in 1990 to regulate the number of vehicles on the road, has made car ownership an expensive proposition.

In recent years, COE premiums have been skyrocketing, leaving many Singaporeans wondering whether leasing a car is now a more sensible option. This article explores the pros and cons of leasing a car in Singapore, especially in light of escalating COE premiums.

Singapore’s COE system

The system allocates a limited number of COEs through bidding, and the prices fluctuate based on demand and supply.

In Singapore, COEs are categorised into several groups. They include Category A (cars with engine capacity up to 1,600cc and 97kW) and Category B (cars with engine capacity above 1,600cc or 97kW).

COE premiums have been increasing across all categories, making car ownership increasingly an exorbitant and unrealistic prospect for many. In fact, COE prices have recently hit new highs, with the open category premium soaring to S$158,004.

Thankfully, car ownership is not the only way to go. For some, leasing is becoming an option.

What does leasing a car mean?

Leasing a car in Singapore involves renting a vehicle for a specific period, typically several years, from a leasing company or a car rental agency. This arrangement allows you to use the car without actually owning it. Instead of buying the car outright or financing it with a loan, you make monthly payments to the leasing company in exchange for the right to use the vehicle.

How exactly does car leasing work?

1. Selecting a car

You choose a car model and make from the leasing company’s available options. The selection may include various brands, models, and specifications to suit your preferences and needs.

2. Lease term

You agree to a lease contract that outlines the duration of the lease, which is typically two to five years, or more. The specific terms and conditions, including the monthly rental amount, are also defined in the contract.

3. Monthly payments

During the lease term, you make regular monthly payments to the leasing company. These payments cover the cost of using the car, including depreciation, maintenance, and insurance. The monthly payments are typically fixed, which makes budgeting more predictable.

4. Mileage limitations

Most leasing agreements come with mileage restrictions, which specify the maximum number of kilometres you can clock during the lease term. Exceeding this limit may result in additional charges.

5. Maintenance and repairs

The leasing company often includes maintenance and servicing as part of the lease package. This means that routine maintenance and repairs are usually covered, alleviating some of the maintenance hassles that come with car ownership.

6. Insurance

Leasing companies often provide comprehensive insurance coverage as part of the lease package, which can be a significant advantage in terms of convenience and cost savings.

7. End of lease options

At the end of the lease term, you have several options:

• You can return the car to the leasing company and walk away
• You may have the option to purchase the car at its residual value if the lease contract allows for it
• You can lease a new car if you wish to continue driving a leased vehicle

8. Ownership

It’s important to note that when you lease a car, you do not own the vehicle. Ownership remains with the leasing company throughout the lease period.

Advantages of car leasing

Lower initial cost

One of the primary advantages of leasing a car in Singapore is the lower initial cost. When you lease, you typically do not have to pay the exorbitant COE price upfront, nor do you need to take out a substantial loan. Instead, you pay a monthly rental fee, which includes maintenance and insurance costs.

Fixed monthly expenses

Leasing provides a predictable monthly expense. You won’t be caught off guard by fluctuating COE premiums or unexpected repair bills. This can make budgeting and financial planning easier.

No depreciation worries

Unlike owning a car, where your vehicle’s value depreciates over time, leasing allows you to simply return the car at the end of the lease term. You don’t have to worry about its resale value or finding a buyer for your used car.

Access to newer models

Leasing often enables you to drive a newer car with the latest features and technology. This can enhance your driving experience and ensure you have access to the most up-to-date safety features.

Disadvantages of car leasing

Monthly rental costs

While leasing might have a lower upfront cost, the monthly rental fees can add up over time. You’ll need to assess whether these ongoing expenses fit your budget.

No ownership benefits

When you lease a car, you don’t build equity in the vehicle. At the end of the lease term, you don’t own the car, and you have nothing to show for the money you’ve spent on monthly payments.

Mileage restrictions

Leasing agreements often come with mileage limits, and exceeding these limits can result in additional charges. This might not be ideal for individuals who drive long distances regularly.

Limited customisation

When you lease a car, you typically cannot make significant modifications or customisations to the vehicle, since it doesn’t belong to you.

Should I buy or lease a car?

In a city where COE premiums are steadily on the rise, the decision to lease a car depends on your individual circumstances and priorities.

Leasing offers a more affordable way to enjoy the benefits of driving without the hefty upfront costs associated with buying a car. However, it also comes with limitations and the absence of ownership benefits.

Before making a decision, it’s crucial to consider your budget, driving habits, and long-term plans. If you prioritise flexibility and want to avoid the financial burden of COE premiums, leasing might be the way to go.

On the other hand, if you prefer long-term ownership and building equity in a vehicle, buying a car despite rising COE premiums could still be a viable option. Ultimately, the choice depends on what aligns best with your financial goals and lifestyle.

Read more: Owning a Car in Singapore: What You Should Know and Consider