The sharp reduction in COE (certificate of entitlement) supply relative to current demand has led to sky-high premiums and equally astronomical car prices. A Toyota Vios, for instance, now costs $119k – twice as much as it did five years ago.

As if that wasn’t enough, the introduction of a tiered ARF (Additional Registration Fee) scheme plus the stricter financing rules implemented earlier this year have truly left aspiring car owners in a quandary, for they’ve created a significantly higher barrier to car ownership for the average buyer.

The previous lending regulations, which allowed banks to extend “full” loans with a repayment period of 10 years, have been abolished. Under the new rules, buyers who intend to purchase a car (including used ones) with an OMV less than or equal to $20k can only borrow 60 per cent of the vehicle’s price (COE included), and must repay the loan in five years. If the car’s OMV is above $20k, a buyer can only borrow 50 per cent of the car’s price and must settle the loan within five years.

Specifically, it’s the hefty down payment that is a big hurdle to many people. Buying a Toyota Vios, for example, requires one to fork out a $47.6k down payment. Acquiring a Camry 2.0 – which is listed at $167k at press time – would mean handing over $83.5k should you decide to purchase one. If you can’t afford to buy a car, we’ll demonstrate how you can still “own” one. Even if you could purchase a car outright, we’ll show you how leasing could potentially save you a good amount of cash.

THE ADVANTAGES

Apart from not having to hand over a big chunk of your savings as a down payment, most leasing contracts also stipulate that the leasing company will be responsible for expenses such as road tax, insurance and vehicle maintenance (see sidebar overleaf for potential “savings”). Some dealers even offer the use of a courtesy car while the leased vehicle is being serviced. Of course, the lessee remains responsible for ERP charges, parking fees and any fines incurred for the duration of the lease.

The greatest advantage leasing holds is that since you don’t own the car, you don’t have to contend with depreciation and resale issues when changing vehicles. This is significant as, generally speaking, a new car loses 15 per cent of its value within the first year alone.

If you’re planning to lease a new car, it is possible to choose specifics such as colour and standard equipment. But if you’re leasing a used vehicle, you’ll be limited to whatever the dealer in question currently has in stock. A new car is, of course, more expensive to lease than an older one. Most firms will also allow you to use your own registration number on the car you intend to lease (as long as you pay the necessary LTA transfer fee, of course).

In contrast to owning a car, leasing also gives you the opportunity to change vehicles sooner, without having to worry about settling the outstanding loan for the car in question. According to Steven Ng, marketing manager at Motorway Group, a customer can negotiate to have an “upgrade clause” included in his contract. “But we will only allow a client to change cars within a reasonable amount of time. A customer cannot expect to be able to change cars every two months. But if it’s a four year contract and the client wants to upgrade after two years, we can negotiate and put that into the agreement.”

THE CATCH

However, when monthly payments on a car lease are compared to monthly payments on a hire-purchase loan, the former’s advantage doesn’t seem especially great. Local Suzuki agent Champion Motors, for example, is offering the Swift 1.4 GLX hatchback (manual gearbox) from $998 a month – subject to a minimum lease period of 36 months.

But if you were to purchase said Swift model, the monthly repayment on a five year loan (at 2.6 per cent annual interest) would be $1,231. This is assuming a 40 per cent down payment against the car’s selling price of $108.9k at press time.

When it comes to luxury models, however, leasing is a much more expensive option. Under Mercedes-Benz’s Star Lease programme, for example, the A200 Style hatchback costs $2,460 a month for a 60-month term. But if you were to purchase the vehicle, listed at $159,888 at press time, your monthly repayment would amount to $1,506 (assuming a 50 per cent down payment and a five-year loan). That’s $954 more to lease the same car per month, or an extra outlay of $57k after five years.

And once the hire-purchase loan is fully paid, the car is “free” to be driven for the rest of its COE lifespan. Besides, if you’re planning to buy a new vehicle, you’ll have your Preferred Additional Registration Fee (PARF) rebate and the remaining COE paper value – provided the owner scraps the car before its tenth year – to put towards the next car. The PARF rebate is 50 per cent of the Additional Registration Fee (ARF) in the car’s tenth year.

In contrast, when the leasing period is over, you’re left with nothing. As several industry veterans have pointed out, this is the other reason why many remain cool to the idea of leasing.

PRE-OWNED LEASING

If leasing a brand-new car is too expensive, you could consider leasing a used vehicle. Performance Premium Selection Limited (PPSL), a dealership that specialises in pre-owned BMWs.

If you want more variety in terms of the makes and models available, you can check out multi-brand distributor Wearnes Automotive’s leasing programme, which offers all the models – both new and used units – from the seven marques (Volvo, Jaguar, Land Rover, Infiniti, Renault, McLaren and Bentley) under the Wearnes umbrella. Apart from these brands, the company also claims to be able to meet a customer’s request for any make/model that isn’t part of its portfolio. Unique to Wearnes, however, are the added services not offered by most firms. For instance, Wearnes’ “Full Service” leasing programme includes vehicle pickup/delivery for maintenance, personal accident insurance in addition to the comprehensive insurance coverage, and 24-hour roadside assistance that covers driving in Malaysia, too.

The quality of the used vehicles available for lease varies by dealer. Motorway, for example, tries to ensure that its cars have good service histories no matter their age, but if your budget is lower, you’re more likely to end up with a high-mileage vehicle. Wearnes, on the other hand, tries to offer cars not more than five years old.

Be aware, too, that some dealers place mileage caps on their cars. Wearnes, for instance, has an annual cap of 20,000km on its vehicles (whether new or used) and charges 50 cents per additional kilometre covered at the end of the lease, although a spokesperson did mention that clients can negotiate to have this clause waived.

AN EMERGING TREND

Although leasing isn’t popular among local motorists yet, more car dealers have joined the leasing game anyway. Porsche, MINI, Kia and Volkswagen are just a few of the authorised agents that have recently introduced leasing schemes. This is great news for drivers, as more options equal better chances of finding the programme that best suits their needs

This article was written by Jeremy Chua, writer for Torque