Executive Summary
Singapore operates one of the world’s most restrictive and expensive vehicle ownership systems, designed to manage limited land resources and prevent traffic congestion. This analysis examines the current financing landscape, regulatory framework, and measures affecting car affordability as of 2025-2026.
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1. CURRENT VEHICLE FINANCING LANDSCAPE
1.1 Core Regulatory Framework
Certificate of Entitlement (COE) System
The COE system, introduced in 1990, represents Singapore’s primary mechanism for controlling vehicle population growth. Key characteristics include:
– Duration: 10-year validity period
– Acquisition Method: Bi-monthly competitive bidding exercises (first and third Monday of each month)
– Current Pricing (January 2026):
– Category A (cars ≤1600cc): ~S$96,000
– Category B (cars >1600cc): Variable, reaching S$129,890 in November 2025
– Represents 40-60% of total vehicle cost
– Vehicle Growth Rate: Zero percent since February 2018 for most categories (except 0.25% for goods vehicles and buses)
Additional Registration Fee (ARF)
A tiered tax structure based on Open Market Value (OMV):
| OMV Range | ARF Rate |
|———–|———-|
| First S$20,000 | 100% |
| Next S$30,000 (S$20,001-S$50,000) | 140% |
| Next S$30,000 (S$50,001-S$80,000) | 190% |
| Above S$80,000 | 320% |
Other Mandatory Costs
– Excise Duty: 20% of OMV
– GST: Applicable on vehicle price, ARF, and excise duty
– Registration Fee: S$350 flat fee
– Vehicular Emissions Scheme (VES): Rebates/surcharges based on emissions
1.2 Financing Options and Restrictions
Car Loan Regulations (MAS-Mandated)
Maximum Loan-to-Value (LTV) Ratios:
– OMV ≤ S$20,000: Up to 70% financing
– OMV > S$20,000: Up to 60% financing
Maximum Loan Tenure:
– New cars: 7 years maximum
– Used cars: Varies based on registration date and COE remaining
– COE renewal loans: Maximum 5 years (for 5-year COE renewal) or 7 years (for 10-year renewal)
Interest Rates (2025-2026):
– New car loans: 2.78-3.5% per annum (Effective Interest Rate: ~5.19%)
– Used car loans: Generally higher rates
– COE renewal loans: Higher rates than new car loans
Total Debt Servicing Ratio (TDSR)
The TDSR framework, introduced in 2013 and tightened to 55% in December 2021, represents a critical constraint on vehicle financing:
TDSR Calculation:
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TDSR = (Total Monthly Debt Obligations / Gross Monthly Income) × 100%
Must be ≤ 55%
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Included in Monthly Debt Obligations:
– Home mortgage payments
– Car loan installments
– Personal loans
– Student loans
– Credit card minimum payments
– Renovation loans
– Other secured/unsecured loans
Impact on Car Affordability:
A household earning S$8,000/month with S$1,000 in existing debt obligations can allocate maximum S$3,400 to mortgage and car loan combined, significantly constraining purchasing power.
1.3 Market Structure
Typical Cost Breakdown: Toyota Corolla Altis (2025)
| Component | Cost (S$) | Percentage |
|———–|———–|————|
| OMV | ~19,421 | 11.6% |
| COE (Category A) | ~96,000 | 57.3% |
| ARF | ~19,421 | 11.6% |
| Excise Duty (20% OMV) | ~3,886 | 2.3% |
| GST | Calculated | Variable |
| Registration Fee | 350 | 0.2% |
| Dealer Markup | Variable | ~10-15% |
| Total Retail Price | ~S$167,888 | 100% |
Effective Monthly Cost (7-year financing at 70% LTV, 3.5% interest):
– Down payment (30%): S$50,366
– Loan amount (70%): S$117,522
– Monthly installment: ~S$1,550
– Plus insurance (~S$125/month), road tax (~S$62/month), parking, fuel, maintenance
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2. AFFORDABILITY CHALLENGES AND IMPACTS
2.1 Structural Affordability Barriers
High Upfront Costs
For the median household income of approximately S$10,869 (2023 data), purchasing a basic new car requires:
– Down payment: ~S$50,000 (4.6 months of gross household income)
– Monthly loan payment: ~S$1,550 (14.3% of gross income)
– Total first-year cost including insurance, road tax, fuel: ~S$75,000-S$80,000
TDSR Constraints
The 55% TDSR cap creates a binding constraint for middle-income households:
Example Scenario:
– Household income: S$10,000/month
– Maximum total debt: S$5,500/month
– Existing home loan: S$3,500/month
– Available for car loan: S$2,000/month maximum
– After accounting for stress test rates (4%), actual borrowing capacity is further reduced
2.2 Socioeconomic Impacts
Income Stratification
Car ownership in Singapore is viewed more as a luxury than a necessity, with purchasing a car considered a significant financial undertaking largely due to complex and costly requirements. Current pricing effectively restricts car ownership to upper-middle and high-income households.
Car Ownership Rate: Approximately 12 cars per 100 people (1 per 8.25 people), among the lowest globally for a developed nation.
“Singapore Dream” Recalibration
The skyrocketing COE prices put cars firmly out of reach for most middle-class Singaporeans, affecting what has been called the “Singapore Dream” of upward social mobility—having cash, a condominium and a car. Sociologists note a shift from achieving the “good life” to settling for a “good enough life.”
2.3 Market Dynamics
COE Price Volatility
Recent trends show significant fluctuations:
– November 2025: Category B surged from S$115,001 to S$129,890
– January 2026: Mixed results with some categories rising, others falling
– Post-pandemic recovery has driven prices to near-record highs
Used Car Market
Used cars offer substantial savings of 30-50% compared to new ones upfront, especially when factoring in COE premiums and ARF. However:
– Remaining COE lifespan affects value
– COE renewal costs upon expiry can exceed vehicle value
– Depreciation strategy differs from low-tax countries
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3. CURRENT AFFORDABILITY MEASURES AND SOLUTIONS
3.1 Government Interventions
Electric Vehicle (EV) Incentives
Early Adoption Incentive (EEAI) (Extended through December 2026):
– Originally up to S$15,000 ARF rebate
– Reduced to S$7,500 effective 2026
– Applies only to newly registered EVs
Vehicular Emissions Scheme (VES) (Extended through 2027):
– Rebates for low-emission vehicles
– Previously, combining EEAI and VES rebates could lower EV upfront costs by as much as S$40,000
– Under revised terms, maximum combined rebate for EVs falls from S$40,000 to S$30,000
– Hybrid vehicles no longer eligible for VES rebates
Emission Surcharges (Increasing):
– High-emission vehicles face escalating ARF surcharges
– Most polluting category: Rising to S$35,000 by 2026 (from S$25,000)
COE Supply Management
– Planned increases in COE supply from 2025 may gradually improve affordability
– Actual supply depends on deregistration rates of older vehicles
– Zero growth rate policy maintained to control total vehicle population
3.2 Market-Based Solutions
Alternative Financing Structures
In-House Dealer Financing:
– Advertises “S$0 down payment” by financing up to 100%
– Generally comes with higher interest rates (can exceed 6-8% EIR)
– Stricter repayment terms
– Should be carefully evaluated against bank financing
Personal Loan Top-Up:
– Used to supplement down payment requirements
– Interest rates typically higher (4-8%)
– Impacts TDSR calculations
– May reduce maximum car loan eligibility from banks
COE Renewal Loans:
– Specialized products for extending COE beyond 10 years
– Based on Prevailing Quota Premium (PQP) – 3-month moving average
– Interest rates typically higher than new car loans
– Maximum 5-7 year tenure depending on renewal period
PARF and COE Rebates
Preferential Additional Registration Fee (PARF) Rebate:
Given when deregistering a PARF-eligible car before it exceeds 10 years of age, provided the COE has not been renewed.
Rebate Calculation:
– Vehicles 0-5 years old: 75% of ARF
– Vehicles 5-6 years old: 70% of ARF
– Vehicles 6-7 years old: 65% of ARF
– Vehicles 7-8 years old: 60% of ARF
– Vehicles 8-9 years old: 55% of ARF
– Vehicles 9-10 years old: 50% of ARF
COE Rebate:
– Proportional refund based on unused COE period
– Formula: (Unused months / Total COE months) × Original COE premium paid
Strategic Implications:
Optimal ownership periods often range from 5-7 years to maximize PARF rebate value, creating a more liquid secondary market but increasing overall cost of ownership through more frequent vehicle replacement.
3.3 Alternative Mobility Solutions
Car-Sharing Services
– Growing platforms (e.g., GetGo, BlueSG)
– Pay-per-use model reduces ownership costs
– Suitable for occasional users
Enhanced Public Transportation
– Extensive MRT network expansion
– Subsidized bus services
– Integrated land use and transport planning
– Government target: “car-lite” society
Micro-mobility Options
– Bicycle-sharing platforms
– E-scooter rentals
– First/last-mile connectivity solutions
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4. COMPARATIVE AFFORDABILITY ANALYSIS
4.1 Total Cost of Ownership (10-Year Period)
New Toyota Corolla Altis (2025):
“`
Initial Costs:
– Purchase price: S$167,888
– Down payment (30%): S$50,366
– Loan amount (70%): S$117,522
Recurring Costs (10 years):
– Loan payments (7 years): S$130,200
– Insurance: S$15,000 (avg S$1,500/year)
– Road tax: S$7,400 (avg S$740/year)
– Fuel (15,000 km/year): S$15,660
– Maintenance/Servicing: S$7,000
– Parking: S$30,000 (avg S$250/month)
– ERP/Tolls: S$3,000
Total 10-Year Cost: ~S$259,260
Annual Cost: ~S$25,926
Monthly Cost: ~S$2,160
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4.2 Income Requirements
To afford this vehicle under TDSR constraints:
– Assuming 20% of gross income allocated to car: Minimum S$10,800/month income required
– Assuming no other debt obligations: Minimum S$3,927/month income required
– Realistic scenario with S$3,000 home loan: Minimum S$11,273/month income required
This places car ownership beyond reach for approximately 60-70% of households.
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5. POLICY OUTLOOK AND FUTURE DIRECTIONS
5.1 Sustainability Transition
2040 Internal Combustion Engine (ICE) Phase-Out:
– All new car registrations must be cleaner-energy models from 2030
– Complete phase-out of ICE vehicles by 2040
– Requires massive infrastructure development for EV charging
Current EV Adoption Challenges:
– Higher upfront costs (even with rebates)
– Range anxiety and charging infrastructure gaps
– HDB parking charging installation limitations
– Reduction in incentives from 2026 onward
5.2 Potential Reform Directions
Short-Term Measures (2026-2028)
– Modest COE supply increases to ease pricing pressure
– Continued but reduced EV incentives
– Enhanced public transport integration
– Expansion of car-sharing infrastructure
Medium-Term Considerations (2028-2035)
– Differentiated COE categories by usage pattern (weekday/weekend)
– Mileage-based taxation to replace flat road tax
– Dynamic COE quota adjustments based on congestion metrics
– Enhanced first-time buyer schemes
Long-Term Structural Changes (Beyond 2035)
– Potential shift from ownership to mobility-as-a-service (MaaS)
– Autonomous vehicle integration
– Complete electrification with renewable energy integration
– Possible COE system reform or replacement
5.3 Tensions and Trade-offs
The Singapore vehicle policy framework faces inherent tensions:
1. Affordability vs. Congestion Management: Lower prices increase accessibility but risk undermining congestion control objectives
2. Equity vs. Efficiency: Public perceptions of the policy are consistently negative regarding equity, with most respondents saying the policy is unfair and makes roads and cars available only to the wealthy
3. Revenue Generation vs. Social Goals: COE auctions generate significant government revenue but concentrate ownership among affluent households
4. Environmental Goals vs. Transition Costs: EV incentives support sustainability but require substantial public investment
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6. CONCLUSIONS AND RECOMMENDATIONS
6.1 Current State Assessment
Singapore’s vehicle financing landscape is characterized by:
– Deliberate scarcity through COE quota system
– Progressive taxation through tiered ARF structure
– Prudential regulation via TDSR framework
– High total cost of ownership compared to regional and global peers
– Effective congestion management but significant equity concerns
6.2 Effectiveness Evaluation
Successful Outcomes:
– Vehicle population growth effectively controlled at zero
– Traffic congestion managed despite dense urban development
– Strong public transportation ridership
– Significant government revenue generation
– Environmental protection through emissions-based incentives
Persistent Challenges:
– Car ownership increasingly restricted to high-income households
– TDSR constraints compound affordability issues for middle class
– Public perception of inequity in access to private transportation
– COE price volatility creates planning uncertainty
– Transition to EVs complicated by cost and infrastructure gaps
6.3 Strategic Recommendations
For Policymakers
1. Enhance Transparency: Revenue usage is not seen as transparent, which is exacerbated by perception that government vehicles enjoy advantages in obtaining licenses. Clear communication on how COE revenues support public goods could improve policy acceptance.
2. Targeted Relief: Consider income-linked rebates or differential COE categories to address equity concerns while maintaining congestion control.
3. Smooth EV Transition: Gradual tapering of incentives with clear long-term roadmap and charging infrastructure investment.
4. Strengthen Public Transportation: Continue investments to maintain high-quality alternatives to private vehicle ownership.
For Prospective Vehicle Owners
1. Comprehensive Financial Planning:
– Model total 10-year cost of ownership, not just purchase price
– Account for TDSR impact on other financial goals (housing, retirement)
– Consider optimal holding period (5-7 years) to maximize PARF value
2. Explore Alternatives:
– Evaluate car-sharing for occasional use
– Consider used vehicles with 3-5 years remaining COE
– Assess EV options before incentive reduction in 2026
3. Strategic Timing:
– Monitor COE trends for bidding windows
– Time purchase to maximize PARF rebate if eventual resale planned
– Consider COE renewal economics vs. new vehicle purchase
For Financial Institutions
1. Product Innovation: Develop flexible financing products that account for PARF/COE value cycles
2. Educational Support: Provide comprehensive cost calculators and financial literacy resources
3. Risk Management: Continue conservative TDSR-compliant lending while exploring ways to serve creditworthy middle-income borrowers
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7. CONCLUSION
Singapore’s vehicle financing landscape represents a deliberate policy choice to prioritize land use efficiency, environmental sustainability, and congestion management over broad vehicle ownership accessibility. The system achieves its primary objectives but creates significant affordability challenges, particularly for middle-income households already managing substantial housing debt under TDSR constraints.
As Singapore transitions toward electrification and potentially new mobility paradigms, the fundamental tension between accessibility and sustainability will require careful navigation. The reduction in EV incentives from 2026, combined with persistent COE price pressures and TDSR constraints, suggests that private vehicle ownership will remain a luxury good for the foreseeable future.
For most Singaporean households, the optimal strategy involves leveraging excellent public transportation, selective use of car-sharing services, and pursuing vehicle ownership only when financial circumstances genuinely permit—accounting not just for purchase costs but for the full decade-long financial commitment that Singapore’s unique regulatory framework requires.
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References
1. Monetary Authority of Singapore (MAS) – TDSR Framework Guidelines
2. Land Transport Authority (LTA) – COE System Documentation and Statistics
3. MoneySmart Singapore – Car Ownership Guides and COE Analysis (2025-2026)
4. Ministry of Transport Singapore – Vehicle Ownership Policy Statements
5. Phang et al. (Various) – Academic research on Singapore’s Vehicle Quota System
6. National Highway Traffic Safety Administration – Vehicle Assembly Data
7. Industry sources: UOB, OCBC, DBS car loan products and rates (2025-2026)
Document prepared: February 2026
Scope: Analysis of Singapore’s vehicle financing landscape and car affordability measures
Methodology: Secondary research synthesis, regulatory framework analysis, financial modeling