10 things you should know about renewing your COE

Source: Ben Chua, The Straits Times, 6 June 2017

Is your car’s COE coming to an end? Here are 10 THINGS you should know if you’re thinking of renewing your COE.

According to the Land Transport Authority (LTA), nearly one in four cars had their Certificates of Entitlement (COEs) renewed in 2016. Higher car prices from an increase in import taxes and surcharges in recent years, and uncertain economic climates, has contributed to more COE revalidations, as car owners seek alternatives to new car ownership. 

In 2017, more than 100,000 cars will see their COEs approach expiry, and three out of 10 cars are currently over eight-years old. If you own one of these cars, you will have a decision to make as its COE expiry deadline approaches. Here are 10 things to know before deciding to give your car a new lease of life.

1. You will forgo your PARF rebate
   When you opt to renew your car’s COE, you’ll instantly lose its PARF rebate. This is the amount of money the Government returns you upon deregistration, also known as the scrap value.
   
   This should be considered if your car’s ARF value is fairly significant. For example, if you have a premium car such as 2007 Mercedes-Benz E200, which usually has an ARF value of around $50,000, you will be forgoing $25,000 in PARF rebates upon renewal. In contrast, cars like a 2007 Honda Civic, which typically has an ARF of about $20,000, will only ‘lose’ $10,000 in PARF rebates.
    
2. There is additional loading on road tax for cars over 10-years old
   For cars over 10-years old, there is an additional surcharge levied on its road tax. This is chargeable at 10% over the car’s regular yearly road tax rate, up to a maximum of 50%. For cars with large capacity engines, the increase can be quite significant. Using an example of a 2.4-litre car, its annual road tax will gradually increase from  $1,632 beyond its 11th year, before hitting a maximum of $2,458 from the 15th year onwards.
    
3. Non-renewable if COE is only revalidated for five years
   There is an option of renewing your car’s COE for five years instead of 10, for which you pay half of the Prevailing Quota Premium (PQP) upon renewal. This might be a more financially sound option for those who don’t have as much cash for a 10-year COErenewal, but note that if you opt for a five-year renewal, you will be unable to extend the car’s lifespan beyond that. A 10-year COE can be renewed in perpetuity.   
   
   This does not apply to commercial vehicles however, which can be further renewed with a five-year revalidated COE, with a maximum lifespan of 20 years.
    
4. You will suffer less depreciation on your car after renewal
   Renewing your car’s COE will always be more financially accessible than buying a new car, as you’ll only pay for the new COE. Therefore, the resulting depreciation over the next 10 years will be significantly less. 
   
   Using again, the above example, a new Honda Civic retails for $111,999 inclusive of COE, and has an ARF of about $20,000. The PARF rebate after 10 years will therefore be $10,000 while the annual depreciation will be $10,199. 
   
   If you renew the COE of your existing Civic, the depreciation is simply a division of the renewal premium (which currently stands at $49,429 for category A cars) over the next 10 years. Even if you take into account the loss of the PARF rebate, the depreciation will still be less than $6,000 annually.
    
5. Renewal is based on average COE prices
   Should you decide to renew your car’s COE, what you need to do is to pay the PQP, which is the average of the COE prices over the last three months. For vehicles, which have a Category E Open COE, your PQP will be based on the respective category that your vehicle belongs in (Category A, B or C).
    
6. You can still renew your COE after it has expired
   You can renew your car’s COE up to a month after it has expired. You will need to send in a request at the LTA’s Customer Service Centre at Sin Ming. Payment can only be made in cash, cashier’s order or NETS, and there are late payment fees applicable, depending on the type of vehicle you are renewing the COE for.
   
   If you choose to renew before COE expiry, you pay using Internet banking via the LTA’s website, or send the payment by post. This has to be done at least two weeks before your car’s COE expiry.   
    
7. You will forfeit the remaining balance of your COE rebate upon renewal
   Aside from the PARF value, the LTA also offers a rebate on any ‘unused’ value of your current COE if you deregister it before the 10-year tenure is up. However, should you renew your COE instead of deregistering it, both rebates are forfeited.
    
8. Your renewed COE car is still eligible for COE rebates upon deregistration
   While a car with a revalidated COE is no longer eligible for PARF rebates, it is eligible for a rebate on the renewed COE. This means that, should you scrap or deregister your car before your renewed COE is up, you will be refunded the remaining COE’s pro-rated amount.  
   
   For example, if you renew your car’s COE for 10 years at $50,000, and decide to scrap it exactly five years later, you will get back $25,000 in COE rebates upon deregistration. This is something worth considering as it means your COE-renewed car does have some residual value post renewal.
    
9. You can take a loan for COE renewal
   Unknown to many, there are banks and Financial Institutions that offer loans to renew your COE. Banks such as Maybank offer a loan quantum of up to 70% over seven years, at an interest rate of $3.25%. Others such as Hong Leong Finance, Tokyo Century Leasing and United Overseas Bank, may offer different rates.
   
   Generally, you can get a loan to cover the entire COE renewal amount. The typical tenures for loan repayments are 59 months for five-year renewals, and 83 months for 10-year renewals; interest rates range from 3.25% to 4.75%. For COE renewals made through finance companies, there will be an additional ownership transfer count added to the vehicle.    
   
   SgCarMart Connect offers a service to help owners who intend to renew their COEs apply for a loan for the renewal. Just submit the relevant documents online to sgCarMart Connect and approval for the loan will be processed within three working days. All procedures can be done online as long as the required documents are sent via fax or email. sgCarMart Connect is also able to help you apply for insurance for the COE-renewed car. More information can be found at http://www.sgcarmart.com/renewCOE
    
10. You can get comprehensive insurance coverage for a COE car
    A common myth is that COE-renewed cars are ineligible for comprehensive insurance coverage. However, it is possible to get comprehensive insurance, although it may be harder. AXA for instance, won’t insure cars older than 25 years, while others like NTUC Income, MSIG and Tokio Marine only offer comprehensive cover for cars older than 10-years on a case-by-case basis. 
    
    There isn’t as much demand for comprehensive insurance for COE-renewed cars as many owners deem it unfeasible to pay hefty premiums that are disproportionate to the value of the car. Insurers are also reluctant to offer anything more than just third party insurance (which covers claim by third parties only) for older cars, as they deem them to be more problematic and susceptible to claims. 
    
    NTUC Income explains that older cars have ‘little market value’ and should they be involved in a major accident, the insurance companies usually write-off the car rather than pay for the repairs as the car’s market value may not be worth much more than the residual value.
    
    However, if you take a loan for COE renewal from some finance companies, they may require that you obtain comprehensive insurance cover as part of their terms and conditions.