Understanding How Car Loans Work in Singapore
In Singapore, car buyers will typically finance the purchase of their cars through car loans. A car loan is an amount of money that is borrowed from a lender - typically either a financial institution or car dealer. The car loan amount a car buyer can borrow depends on the car's purchase price.
|Purchase Price of Car||Maximum Car Loans|
|< $20,000||Up to 70%|
|> $20,000||Up to 60%|
Regulations for car loans in Singapore
Under the regulations of MAS, the maximum repayment duration of a car loan in Singapore is 7 years. The borrower then needs to pay back the amount in installments, where the amount is the principal sum borrowed with interest tacked on top of it.
Example of a Car Loan
Take for example, an amount of $20,001 is borrowed from a bank, where the interest rate is 2.48% per annum, and the amount is repaid over an instalment of 24 months. As the interest is a flat rate, the amount that needs to be returned in total is $20,001 multiplied by 2.48% x 2 = 4.96%.
Therefore, the amount to be paid per instalment would be (1.0496 x 20,001) / 24 = approximately $875 dollars per month for 24 months.
Are You Eligible For A Car Loan
Above 21 years old
Generally, age assessment varies from individual car dealers and banks. A rule of thumb to follow is to be over 21 years old, be a citizen or permanent resident of Singapore, have an annual income of more than $20,000 and have a stable employment status.
Clean Credit Status
The borrower needs to have a good or clean credit status in order to lower risk for the money lending institution. A person who has a bad credit score may be charged a higher interest rate as the risk of loaning the amount to him is greater.
Age & Condition Of Car
If you’re on a work permit, the validity of your work permit needs to be a duration long enough to reassure your loaner that you would be able to pay the entire amount borrowed for the car loan before you move back to your home country.
For instance, if you are having a car loan to be repaid over the span of 3 years, your working permit ought to be at least 3 years long in validity.
Why And When To Get A Car Loan
It is well-known that if you are able to cover the entire cost of the car, you should pay the full amount upfront, in one go. There are several advantages associated with this: there is no interest tacked on top of it, car dealer may give you discounts and freebies as incentives, and you can relax knowing that you don’t owe anybody money.
However, that is only the ideal scenario, and there are some people who decides to buy car through loans even if they can afford to pay the full amount upfront.
Most People in Singapore Buy Cars through Loans
Chances are likely that you belong to the other common category, which is the group of people who have difficulty in paying the entire cost of the car in one fell swoop. This is when you should get a car loan, as it allows you to have a car now, which can be a convenient for your lifestyle if you have to travel a lot.
Use the Money for Investment Instead
You may also belong to the third category of people, who are able to pay for the entire amount of the car, but would actually benefit even more from having that amount on hand for investments. The investment returns outweigh the interest accrued from the car loan. This is also when you should get a car loan.
Where To Get A Car Loan?
Generally, there are two accessible places to get your car loan. They are namely car dealers (the ones who sell you the car) and banks.
Taking a Car Loan from The Bank
From the perspective of banks, you can either get a car loan or a personal loan (in which you then use to finance your car purchase). The main difference between these two kinds of loans is whether it’s secured by your car or not.
If you fail to pay back the loan amount, the car that you painstakingly borrowed money to pay for can be seized and reclaimed back by the entity that loaned you the money. It is known as a secure loan.
If you borrow money from the bank as a form of personal loan to finance your car, it is known as an unsecured loan. If you fail to repay your loan, your car will not be the object that is seized away.
Types Of Car Loans
Although a car loan sounds like what it is, a loan to purchase your car, it can quite deceiving as there are many different kinds of car loans out there.
New Car Loan
This is a car loan for new cars. You can generally borrow up to 60% or 70% of the value of the car you’re trying to purchase, according to guidelines set by the Monetary Authority of Singapore.
Interests usually start at 2.48% per annum at a flat rate (meaning that the interest is not compounded, but calculated from the amount that you have borrowed), assuming a good/clean credit and financial profile.
Used Car Loan
Similar to the new car loan system, interest rates are charged per annum at a flat rate. In this case, the interest starts at 2.78% per annum, taking into account your credit profile.
Why is the interest rate higher? This is because used cars often do not come with warranty, and their resale value are often varies, meaning it’s hard to pinpoint its actual value.
The increase in interest rate is to safeguard the interest of the car loan provider.
Direct Hire Purchase
For direct hire purchase, the car dealer plays the role of a middleman to secure a loan from the bank on the customer’s behalf.
This is basically leasing the car to the customer until the entire cost of the car has been paid off, after which ownership of the car is transferred to the customer.
However, as long as the car loan amount is not paid off, the car does not legally belong to the customer.
The most dreaded hurdle to finally own a car, the Certificate of Entitlement (CoE) is a uniquely Singaporean implementation to limit the number of motor vehicles on the road.
COE loan is one of the costlier components of owning a car. Most of the time, it costs more than the car you’re trying to purchase. This is where CoE financing comes in.
You are able to have a CoE loan from either banks or car dealers. Usually, the interest rate is flat, and it ranges from 2.98% to 3.5% per annum depending on your overall credit profile.
The duration of loan is 10 years as that is the number of years a COE can last till.
COE Renewal Loan
Similar to COE financing, COE renewal is meant for customers who wish to extend the validity duration of their original COE for another 5 or 10 years.
The interest rate follows that of COE Financing, while also depending on the overall credit profile and the duration of loan.
Why choose The Car Regency as "the place to go" for car loans?
Firstly, our loan packages for all the different kinds of loans are provided on a flexible basis.
We are also introducing a new package catering to customers who would like to finance their COE renewal. This package involves paintwork, servicing, replacement of leather seats and various other maintenance work on your car. The unique characteristic of this package is that the cost will be lumped under the loan as well, meaning that there is no need for upfront payment.
We are also extremely knowledgeable in the area of car-related loans due to our extensive experience with them. If you happen to have any questions, and would like to take the discussion further, feel free to contact us!
Frequently Asked Questions (FAQs)
Sorry, car insurance is not covered under car loans. You will have to pay a separate amount for it. We are able to recommend and help you select a suitable car insurance for your car though.
This is evaluated on a case-by-case basis, which involves your personal credit profile as well.
Similar to lacking funds for a payment, we would need to assess other parts of your credit profile before coming to a decision.
Yes, you still stand a chance to get a car loan. However, it would be subjected to higher interest rates due to higher risk of you defaulting on the payment.
As mentioned before, our car loan scheme is flexible. You may contact us to find out more!