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Compare No Instalment With New Debt Over One Horizon
A paid-up car has no lender payment, but it still consumes value and cash. A financed replacement has an obvious instalment, but part of each payment repays principal and the car retains an exit value. Comparing only the monthly payment misstates both routes.
Choose one holding period, build an economic-cost view, then build a separate cash-flow view. The worked example below uses five years because the hypothetical loan ends at the same time as the comparison.
Two views, one horizon
Ownership cost measures the value consumed: starting value or price, less exit value, plus finance cost, repairs, maintenance, downtime and transaction costs.
Cash flow measures when money enters and leaves the household: sale proceeds, downpayment, repayments, upkeep and exit proceeds or settlement.
Collect evidence before choosing numbers
| Evidence | Paid-up old car | Financed replacement |
|---|---|---|
| Starting value | Two dated sale or trade-in offers | Itemised purchase quotation |
| Exit value | Conservative year-five sale estimate and relevant LTA rebate enquiry | Conservative year-five sale estimate and relevant LTA rebate enquiry |
| Mechanical cost | Inspection, diagnosed work and scheduled wear | Warranty exclusions, servicing and scheduled wear |
| Finance | None if no debt remains | Amount financed, flat rate, effective interest rate, total repayment and settlement schedule |
| Disruption | Expected off-road days and backup transport | Expected off-road days and backup transport |
The old car's current S$24,000 value in the example is not a sunk cost. Selling it today could release that amount. Keeping it commits the asset to the next five years.
Translate the loan quote before comparing
Assume the replacement costs S$68,000. A lender quote finances S$40,800 over five years at a 2.8% flat annual rate, leaving a S$27,200 downpayment.
Quoted interest = S$40,800 × 2.8% × 5 = S$5,712.
Total repayment = S$40,800 + S$5,712 = S$46,512.
Monthly instalment = S$46,512 ÷ 60 = S$775.20.
A flat rate applies interest to the original principal across the full term, so it is not the effective cost on the declining balance. Ask for the effective interest rate and repayment schedule. If the car may be sold early, also obtain the lender's settlement method and dated settlement amount.
Regulated financial-institution vehicle loans are subject to maximum loan-to-value limits based on the car's open market value: 60% where OMV exceeds S$20,000 and 70% where OMV is S$20,000 or less. The worked example uses an actual hypothetical quote rather than inferring eligibility from purchase price. Dealer-arranged alternatives can fall outside MAS regulation, so compare their contracts and effective cost carefully.
Compare five-year ownership cost
Assume the paid-up car is worth S$24,000 today and S$3,000 after five years. Repairs and maintenance total S$16,000, and downtime costs S$3,000. Common costs that are equal on both routes are omitted.
The replacement costs S$68,000 and is worth S$38,000 at the end. Add S$5,712 loan interest, S$3,000 maintenance, S$600 downtime and S$1,500 transaction costs.
| Five-year ownership cost | Paid-up old car | Financed replacement |
|---|---|---|
| Starting value / purchase price | S$24,000 | S$68,000 |
| Exit value | −S$3,000 | −S$38,000 |
| Loan interest | — | S$5,712 |
| Repairs and maintenance | S$16,000 | S$3,000 |
| Downtime | S$3,000 | S$600 |
| Transaction cost | — | S$1,500 |
| Total ownership cost | S$40,000 | S$40,812 |
The old car is S$812 lower in this base case. That narrow gap means reliability evidence, exit values and realistic repair stress matter more than the absence of an instalment by itself.
Rebuild the same example as cash flow
The paid-up route pays S$19,000 for repairs, maintenance and downtime, then receives S$3,000 at exit: net cash outflow S$16,000.
The replacement route sells the old car for S$24,000, pays S$27,200 down, S$46,512 in repayments, S$3,000 maintenance, S$600 downtime and S$1,500 transaction cost, then receives S$38,000 at exit:
S$27,200 + S$46,512 + S$3,000 + S$600 + S$1,500 − S$24,000 − S$38,000 = S$16,812.
The S$812 cash difference matches the ownership-cost difference because the loan is fully repaid at the five-year exit. Over a shorter horizon, include the lender's settlement amount and do not count outstanding principal as an economic cost twice.
At purchase, the replacement needs S$27,200 + S$1,500 − S$24,000 = S$4,700 net upfront, before insurance changes, maintenance or a liquidity buffer. Passing the total-cost test does not prove the household can safely carry the timing of those payments.
Stress the assumptions that can reverse the answer
- Old-car repair stress: add named, inspection-supported risks separately rather than a vague age allowance.
- Reliability stress: price the actual critical trips that would fail during another outage.
- Exit-value stress: reduce both sale estimates and recalculate; do not assume a dealer asking price is realizable value.
- Income stress: test whether instalments remain manageable after an income interruption.
- Early-exit stress: compare conservative sale proceeds with the lender's settlement quotation.
Use the household reliability gates for the outage question and the 12-month old-car ledger for the repair trend. If a current workshop quote is driving the decision, first run the 24-month repair-or-replace comparison.
Record a decision that can be checked later
“Over [horizon], the paid-up car costs S$[amount] with net cash outflow of S$[amount]. The replacement costs S$[amount] with S$[upfront], S$[monthly] and S$[exit settlement]. We choose [route] because the S$[difference] is / is not justified by [reliability and household evidence]. We will revisit if [written trigger].”
FAQ
Is a paid-up old car free to keep?
No. The amount you could realize by selling it today is an asset committed to the keep route. Add its value loss, repairs, maintenance and downtime over the comparison horizon.
Should I compare the old car only with the new monthly instalment?
No. Compare full ownership cost and cash flow separately. The instalment contains principal as well as interest, while the car retains an exit value.
How do I calculate interest on a flat-rate car loan quote?
For a simple full-term quote, multiply the amount financed by the flat annual rate and the number of years. Confirm the lender's effective interest rate, repayment schedule and early-settlement amount because flat rate understates the effective cost of borrowing.
What if I may sell the financed car before the loan ends?
Use the lender's dated settlement amount at the planned exit, not the sum of remaining instalments. Compare that debt with conservative sale proceeds and keep a buffer for a shortfall.
Sources and method
- MoneySense — Costs of borrowing: flat rate, monthly rest and effective interest rate
- Ministry of Transport — Vehicle-loan limits and alternative financing warning
- Land Transport Authority — PARF and COE rebates
- Land Transport Authority — Enquire PARF/COE rebate for a registered vehicle
Worked amounts are hypothetical. Replace them with dated sale offers, an itemised purchase quote, workshop evidence, a lender schedule and LTA enquiries.
Last updated: 24 Sep 2026 · Editorial Policy · Advertising Disclosure · Corrections