Find out how to drive away with a better rate.
Before you sign on the dotted line with the car loan your bank is offering, compare your options from a wide range of brands. There are some incredibly cheap car loans out there and the key to finding the right one is picking the loan type to suit your financial needs.
Find out what you need to know to compare car loans and pick the right option for you.
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Guide to car loans
- How a car loan works
- What types of car loans are available
- What to check before you apply
How do car loans work?
Car loans can work differently depending on what type of loan you take out and what kind of car you’re looking to purchase. Generally, the following steps will apply:
You apply for finance. Once you’ve chosen your car finance, you need to submit your application. Ensure that you have these details on hand:
- Vehicle Sales Agreement (if applicable)
- Employment details
- Details of existing financial commitments
- Income documentation
- The lender approves your loan. Car finance approvals can happen on the same day or they may take up to 10 days. You may also be able to receive conditional approval, whereby you will be told how much you are likely eligible for so you can go car shopping knowing how much you have to spend.
- The car is purchased using the funds. This can be handled a few different ways. If you’re buying a car in a private sale, your lender may be able to pay the seller directly or give you a cheque to pay it yourself. If you’re purchasing from a dealership, the lender will usually pay them directly.
What types of car loans are there?
In Singapore, a car loan is a secured loan whereby the car itself is the collateral pledged to the bank. However, the risk of losing the car to the bank is very low as long as the borrower continues make good on the loan through regular payments. Being a secured loan, it is also easier to acquire and receive fast approval for car loans provided the borrower has a good credit score and meets the eligibility criteria.
Car loans are provided by both banks and finance companies. Besides working with the banks, finance companies also work collaboratively with insurance companies and car dealers to offer borrowers affordable rates. In Singapore, we typically see four types of car loans:
New car loan
These loans are most commonly sought-after by borrowers looking to purchase a new car in Singapore. Almost all banks and finance companies in Singapore offer car loans that allow borrowers to purchase a new vehicle from the showroom of a car manufacturer or an authorized dealer. Tenures may vary from one to seven years and can be acquired quite easily as long as the borrower meets the eligibility criteria and having a good credit score.
Used car loan
Used car loans usually come with a unique set of eligibility criteria pertaining to the age of the car. However, since used cars are much cheaper than a brand new car, many borrowers do consider it.
Commercial car loan
As the name suggests, these loans are offered to those borrowers intending to purchase a car for commercial purposes. Cars that may be purchased through this loan include company cars, taxicabs, and even cars used for Grab.
Car loan refinancing
Through car loan financing, borrowers with an existing car loan can switch from one bank to another for more competitive interest rates. The new bank to which you transfer the loan will pay off all the outstanding loan amount, and you will refinance the car on newly-agreed terms.
You can compare car loans by looking at the following
Before you apply for any loan, it’s always a good idea to check as many details as you can about the offer you’re getting. Here are some things you need to look for before you proceed.
- The interest rate. The interest rate charged on your car finance will play a part in how much your repayments will be. Always know what rate you’re being offered and take the time to compare car loans from other lenders to be sure the offer is competitive.
- The actual loan term. Car loans can be set over loan terms as short as one year or up to as long as seven years. Some lenders, usually dealership finance providers, will give you a set loan term which comes with a balloon payment at the end of it. Check if your repayments will pay off your loan or if you’ll need to cover more at the end.
- How your repayments will work. Ask how often you need to make repayments, how you make them and check if you’re able to make extra repayments or repay your loan early without penalty.
- What fees you will be charged. For every car, there will be a basic administrative fee of $140 and a processing fee of $25 (before GST). Check with your lender if there are any other fees that you’d need to be aware of.
- If the lender requires insurance. As long as you opt for financing, it is compulsory to take up comprehensive insurance. In Singapore, it is common practice for car dealerships and salespeople to bundle up their loans with car insurance. However, this may cost more than getting your car insurance individually.
Tips for better car finance
- Making sure you get the cheapest car loan
- How to get a lower rate
- Ways you can reduce your repayments
When the cheapest interest rate isn’t the cheapest car loan
When most people go hunting for the cheapest car loan, they immediately look for a low-interest rate car loan and believe they’re getting a great deal. Unfortunately, fees and charges and late payment penalties can ramp up the cost of a loan, making the loan less competitive. Compare thoroughly before committing.
Make sure you consider all costs before you apply for a car loan and use a comparison rate calculator to determine your repayments.
How to get a lower interest rate
Be aware of interest rates in the market
If you take the time to compare car loans on finder Singapore, you’ll get a strong idea of what interest rates are available from a range of lenders. This gives you plenty of ammunition when it comes to negotiating with your own lender.
See if you can negotiate a price with the seller
If you’re keen to stay with your bank for your car finance needs, take your interest rate information with you when you make your enquiries. This will encourage the lending officer to see if there is any room to take a few extra points off the interest rate they offer you.
Take out car dealership finance
When you apply for a loan through the finance officer at a car dealership, you have lots of room to negotiate on rates. This is because the dealership often receives their loans at discounted rates, leaving them extra room to bump up the rate you pay. That margin between what they pay to the lender and you pay to them forms their undisclosed commission. In other words, every time you make a payment, some of it goes towards paying interest to the lender and some goes to paying commission to the car dealership. Haggle and negotiate on the rates you’re offered through the car dealership.
Can you get a package deal?
Some banks will offer a discount off their advertised interest rates if you also have other banking products with them. If you already have a mortgage, a credit card and a transaction account with one bank, check if they will give you a discount on your car finance if you add that to your package.
Ways you can reduce your monthly repayments
It’s always possible to reduce the payments you make on your car finance each month. The key is to ensure that you’re not paying more than you really should over the entire term of the loan. Here are some ways you can reduce your minimum monthly payments.
It might sound obvious, but it’s true. If you can borrow even a little bit less on your loan amount, you’ll end up paying less on your monthly repayments. Borrowing an additional $10,000 over a five-year loan term adds up to $2000 per year extra you have to pay back, plus the interest charged on that amount as well. This adds up to approximately $190 extra out of your pocket per month (assuming that the interest rate is 2%).
Consider a residual balloon payment
When you apply for car finance that has a residual balloon payment remaining at the end of the term, you can drastically reduce your monthly repayments as you are not required to pay installments on the minimum PARF rebate portion of your car loan. For example, if you borrow $50,000 and you leave a $10,000 residual balloon payment to be paid at the end of the loan term, your repayments will be calculated based on the $40,000 to be repaid over five years, plus interest on the entire $50,000. Keep in mind you’ll need to cover this cost at the end of the term, or refinance it with the lender.
Opt for a longer loan term
When you choose a longer loan term, the amount you’re required to pay each month is reduced. Unfortunately, the lender also gets to charge you interest on your debt for a longer period of time, so you could end up paying far more in interest over the term of the loan.
Comparing car loans
Let’s take this example of a loan term on a $70,000 car loan.
|Description||Option 1||Option 2|
|Loan term||5 years||7 years|
|Total paid over loan term||$79,450||$82,250|
In this example, option 1 has a higher monthly repayment but you only end up paying $9,450 in interest over the term of that loan. By comparison, option 2 allows you to pay $345 per month less on your monthly repayments. This will definitely make budgeting easier throughout the loan term, but you end up paying $12,250 in interest over the life of the loan. This is $2,800 more in interest charges you end up paying overall.
How to apply for a car loan
- What you need to apply
- Car loan eligibility
- The car loan approval process in Singapore
What you’ll need to apply
Below is a checklist of some of the information and documentation you may need to supply for your car loan application.
- NRIC (front and back) OR
- Work permit (for non-resident or foreigner)
- Utility bill to serve as proof of address (for non-resident or foreigner)
Income and employment
- Copy of latest Income Tax Notice of Assessment (2 years for Self-employed)
- Copy of 1 to 3 months of computerised payslip from current employer
- Copy of latest 6 to 12-month CPF Contribution Statement
- Copy of the bank statements dating back at least 6 to 12 months.
- Employment information and employer’s contact details
Assets and liabilities
- Details of properties or large assets (such as a car) you own
- Your ongoing expenses
- Details of existing financial commitments such as housing loan, personal loan, credit cards
Details of the car
- The make, model, year and colour of the car
- Sale and purchase agreements
- Vehicle registration card
- Application for Hire Purchase
Car loan eligibility
In Singapore, a car loan can provide financing up to 70% of the purchase price of the car. However, borrowers need to meet certain eligibility criteria in order to qualify for a car loan, which are as follows:
- The borrower must be a Singapore citizen or Permanent Resident.
- Some lenders and banks may be willing to provide car loans to foreigners provided they have a valid work permit with minimum 1 year validity.
- Minimum 21 years of age
- Good credit score
- Most banks and lenders in Singapore requires an annual income of S$20,000 or more to be eligible for a car loan. Borrowers must earn a high enough monthly income such that their TDSR (total debt servicing ratio) does not fall below permissible levels.
The car loan approval process in Singapore
Getting your car loan approval might seem quick, but there are several stages your application needs to progress through before your money is released to the seller of the car.
Step one. To get the approval process started, you will need to fill out and sign an application form. This can be done in person at the bank branch or at the car dealership, or alternatively can be filled out using the lender’s online application form on the website.
Step two. Once your application has been received, it’s reviewed by a credit officer. If everything is in order, you should receive your conditional approval within 24 hours to 5 working days.
Step three. The Final Approval stage is where the lender may request you to supply any documentation to support your application. This includes your identification, payslips or income verification, bank statements and any other pertinent information required.
Step four. Once your final approval has been received, you’ll be asked to sign your loan documentation. This is your agreement with the bank to repay any remaining downpayment (difference between purchase price and approved finance amount) to your dealer.
Step five. Your dealer will then proceed to do the following and update you on the progress: Order your car (if out of stock), bid for new car COE and register your car.
Step six. Your dealer will contact you when your car is ready for collection.
Step seven. You will then begin to make the monthly repayments, either via GIRO, cheque or cash.
Questions you may have about car loans
If you still haven’t found the information you’re looking for, we’re confident you’ll find it below.
Remember that a car loan can be a large financial commitment, so do your due diligence and compare a wide range of options before applying.