Car prices in Singapore seem to be heading only in one direction these days - upwards, prompting car owners to seek alternative ways to moderate the cost of owning a car.

One option is to continue driving your car for as long as it is safe to do so, but in order to do that, you'll have to renew your Certificate of Entitlement (COE).

Understanding COE renewal

Why do you need to renew your COE?

Private cars in Singapore are only allowed to be legally driven on the roads for a maximum of 10 years - that's the validity period of the COE. Hence, if you wish to continue driving that same car after the 10-year limit is up, you will need to renew your COE.

COE renewals come in two versions - a five-year renewal, or a 10-year renewal. Besides the duration, there's also one important difference (applicable to private cars in Categories A and B):

• Five-year COE renewals can only be done once, after which no further renewals are permitted. Your car will have to be deregistered upon expiry of the renewed COE.
• 10-year COE renewals may be renewed as many times as you like. Each renewal must be in blocks of 10 years; you cannot switch to a five-year renewal.

How much do you need to pay to renew your COE?

When renewing your COE, you will be required to pay what's known as the Prevailing Quota Premium (PQP).

The Land Transport Authority defines the PQP as 'the moving average of COE prices in the last three months'. As such, the PQP varies from month to month, and closely tracks COE prices in Singapore.

Here's how much PQP you need to pay when renewing your COE:

• Five-year renewal: 50 per cent of PQP
• 10-year renewal: 100 per cent of PQP

You can check the current PQP over at OneMotoring.

Cost comparison - Honda City 1.5L Sedan

We used a Honda City 1.5L mid-size sedan as a benchmark, which falls under COE Category A, for a quick cost comparison between three options - buying brand new, buying second-hand, and renewing COE.

Here's what we found.

Most expensive: Buying a brand new car

No surprises here; buying a brand new car is the most expensive option, by far.

The reason for this is, of course, the current high COE prices, which are unfortunately showing no signs of abating.

Now more than ever, buying a brand new car isn't a decision to be taken lightly; given that you may need to service your car loan for up to seven years.

Middleground: Buying a second-hand car

When you buy a used car from the open market, you will also inherit the remaining COE tenure on the vehicle. You do not need to pay any additional charges.

Another benefit is that second-hand cars come in a large range of COE tenures, allowing you to choose a vehicle with a COE expiry date that closely fits your plans.

Additionally, second-hand cars also tend to offer a lower depreciation rate; as most cars see the highest depreciation rates in the initial few years of their lifespan

Cheapest option: Renewing your COE

As explained earlier, when you renew your COE, you need only pay the PQP. This enables a large reduction in costs, compared to the other two options.

Furthermore, choosing a five-year COE renewal requires you to pay only 50 per cent of the PQP, further lowering the cost to continue driving your car.

Factors to consider when renewing your COE

Renewing your COE is the most affordable option, but of course, the downside is the advanced age of your car.

After 10 years of use, there is bound to be some wear and tear, even if you are diligent in the upkeep of your vehicle. Also, you will be missing out on newer features and improvements in newer models, although some drivers may not mind this as much.

Secondly, note that car loan interest rates for COE cars (the term assigned to cars no longer using their original COEs) are likely to be higher than those for new cars. However, given the much lower loan amount, you may not feel the sting as sharply.

Finally, even if you love your car so much that you have no qualms renewing its COE, it is likely that you'll have to invest in repairs and replacements, such as new upholstery and seats, wheels and tyres, suspension systems, entertainment systems, accessories and maybe even an engine overhaul.

You'll need to plan how to fund these extra expenses when renewing your COE.

ALSO READ: These shouldn't be the reasons to stop you from buying a particular car

This article was first published in ValueChampion.