It’s no secret that cars are the second most expensive items you can expect to buy after a property in Singapore. So unless you are in the top 1% or have had a huge windfall, you are unlikely to be able to afford a car here without a loan.
- Best car loans with low interest rates in Singapore
- Additional cost to take note of
- Maximum amount you can borrow to buy a car
- How to calculate effective interest rate for car loans in Singapore
- Is this a good time to buy a car?
Here are some of the car loan interest rates offered by major banks and financial institutions (FIs) in Singapore.
Best car loans with low interest rates in Singapore
Cars loans and their terms and conditions do not vary very much from bank to bank, and loan tenures generally range from 5 to 7 years.
Even the interest rates are quite competitive and not too far apart, generally ranging from 2.48% to 2.78% for both new as well as used cars. The loan rates below are correct as per bank sources at the time of writing:
|Bank||New Car (% per annum)||Used Car (% per annum)|
|DBS Car Loan||2.78||1.99|
|Hong Leong Finance Car Loan||2.48||2.78|
|OCBC Car Loan||2.78||2.98|
|Standard Chartered Auto Financing||2.48||2.78|
|Tokyo Century Leasing Car Loan||2.78||2.78|
|UOB Car Loan||2.68||2.78|
But do not just look at the advertised car loan rates. When you buy a new or used car, dealers will usually offer you about two to three preferred banks or FIs to get your car loan from. If the dealer has a special tie-up package with the bank, the interest rate may be even lower than advertised.
For new car buyers, the dealer may even sweeten the deal by offering you incentives such as cash rebates or a significant discount off your car price if you select one of their preferred banks or FIs. These financial sweeteners may be more attractive than a marginally lower interest rate.
Additional costs to take note of
Also, it is important to be aware that in addition to the advertised interest rate, banks and FIs will also charge you some additional fees when you undertake a car loan, such as:
|Additional fee||Cost||What it is|
|A processing / administrative fee||Around $200||May be waived if your loan amount is more than $20,000|
|Early settlement penalty||1% or more of your outstanding loan||You need to fully pay off your car loan before you sell it. If you sell off your car before your loan matures, you will be charged an early settlement fee as a percentage of the outstanding loan amount.|
|Unpaid interest fee||Usually 20% of your unpaid interest||On top of your early settlement fee, you will need to pay a fee of 20% of your unpaid interest based on the Rule of 78.|
Maximum amount you can borrow to buy a car
With a car loan from a bank or financial institution, you can generally borrow up to 60% or 70% of your car’s purchase or valuation price based on its Open Market Value (your vehicle’s original cost of production).
|OMV||Maximum finance amount|
|Less than or equal to $20,000||70% of the purchase price or valuation price, whichever is lower|
|More than $20,000||60% of the purchase price or valuation price, whichever is lower|
But it is important to note that the actual amount that you can loan from the bank or FI may be much lower. This is because the bank will also take into account other factors such as your monthly income, financial commitments and credit score.
Your Total Debt Servicing Ratio (TDSR) also stipulates that you cannot use more than 60% of your income to repay your loans. This means that if you are already servicing debts such as massive outstanding credit card bills, your student loan or monthly instalments for a major housing loan, you will most likely not be able to hit the maximum 70% for a car loan.
How to calculate effective interest rate for car loans in Singapore
For car loans, the advertised interest rate you see is not what you get. Instead, you will be charged an Effective Interest Rate (EIR) which is much higher.
What’s EIR? EIR is the rate that takes into account the effects of compounding over time and reveals the real percentage rate owed in interest on your car loan.
Car loans usually use a Flat Rate Method, which charges you a fixed amount of interest based on the original amount you borrowed.
For instance, if you borrow $100,000 from Standard Chartered for your car loan and the bank charges you an interest rate of 2.48% per annum for a maximum loan tenure of 7 years, your EIR is actually 4.65%. You will have to pay a monthly instalment of:
$100,000 + (2.48% x $100,000 x 7 years) / 7 years x 12 months = $1,397 per month for 7 years
Is this a good time to buy a car?
It really depends on whether you really need one and if you can afford one.
You may have gotten a new job that requires you to drive around frequently to meet or ferry clients, or you may be having a new baby soon and want the added convenience. You may be nearing the 10-year mark of your Certificate of Entitlement (COE), or you may have seen an offer in a car ad that is too good to miss. Then, it’s a good time for you.
Otherwise, it pays to wait it out for favourable conditions when purchasing a big ticket item such as a car in Singapore. One major indicator to look at here are the prevailing COE prices.
The COE gives you the legal right to register, own, and use a vehicle in Singapore for 10 years. The Land Transport Authority’s bidding exercise closes every 1st and 3rd Wednesday of the month. Experts advise against purchasing a car within the three days prior to the closing of the COE bidding exercise as this is when dealers usually increase their car prices as a buffer in case the COE spikes.
Because the price of the COE is determined based on demand and supply, it can range very widely from around $30,000 to as high as $50,000 for a sedan car.
So, if you purchase a new car with a cheaper COE, you are, in fact, getting quite a substantial discount. To save more, consider getting a used car instead.
If you only use the car to ferry parents or children on the weekends, opt for a reduced usage off-peak car, otherwise commonly known as a “weekend car”.
We hope we have helped you make a decision on whether to buy a car or not with this car loan interest rate guide! Now that you have read up on car loan interest rates, take a look at car insurance plans to compare and buy the most affordable plan that suits your needs.