The total debt servicing ratio (TDSR) does not take into consideration the lifespan of the asset being bought, which is causing a distortion in used-car prices. A person reaching his debt limit can, for the same maximum quantum, finance a higher proportion of, say, an eight-year-old car than that of a new car. However, the same loan is used to finance two cars with vastly different perishable lifespans.
For example, if a person can borrow a maximum of S$30,000 due to his TDSR, he can buy an eight-year-old car at S$50,000, but not a new car at S$110,000, even though the ownership cost of the latter is lower.
This artificial affordability is allowing used-car dealers to jack up prices when people cannot buy a new car due to the TDSR constraint.
I just bought a new car at S$106,000. Considering the Preferential Additional Registration Fee rebate at the end of 10 years, the straight-line depreciation of this car is about S$10,000 a year.
Used-car advertisements show that the cost of owning an eight-year-old car is above S$12,000 a year. The less well-off are consequently driven to despair and anger.
