Many car buyers are turning a blind eye to pre-owned cars as the cost of getting a brand new one is getting more affordable these days. The two main reasons for this phenomenon are the abundance in number of COEs issued and reduced upfront taxes in recent years.

You may ask, so why should you buy a used car now?

Smart car buyers will recognize the significance in savings offered by cars which are less than three years old.

Let's draw a scenario to illustrate this point:

A one year old Honda Civic will cost approximately S$10,000 lesser than a brand new one. Say, pretty good deal isn't it? Indeed. Hold on, there is more.

The older Civic has an annual depreciation rate of about S$500 lesser than the brand new one. In other words, if you choose to buy the pre-owned Civic, you save S$4,500 over a span of nine years before the car gets scraped.

The rule of thumb

Generally, savings are made when you purchase Continental cars and cars with big engine capacities. Yes, our all-time local favourite, the sleek BMW and prestigious Mercedes-Benz fall nicely in this category.

Remember, the bigger the car, the higher is its depreciation rate. The savings incurred when buying a used Japanese car is roughly 10 per cent vis-à-vis 20 to 30 percent for a Continental car.

Bottom line - always keep your eyes open to the difference between the depreciation rate and COE value of the particular model you are interested in. (You may refer to LTA's website for details on past COE prices and how to calculate the scrap benefit.)

When you should not buy a used car

Nevertheless, a pre-owned car does not necessarily translate to instant savings. Do note that there is a transfer fee of 2 per cent of the car value which must be paid to LTA for a pre-owned car. Therefore, it may not be wise to purchase a used car if the difference between a brand new one and a used one does not constitute a considerable amount.

You should also bear in mind that there will be additional cost incurred when getting a used car - changing the brakes, battery, tyres etc. The price difference between a used car and a brand new one should significantly outweigh all the abovementioned costs.

Lastly, do try to get a trusted evaluation company like STA to check if a car has been through an accident. Such signs will not be easy detected by the naked eye. After all, the last thing you want to buy is a lemon.