Before you sign up to the car loan your dealership or bank is offering, compare your options from a wide range of brands. There are some competitive 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 in Singapore, and how to pick the right option for you.
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A car loan in Singapore can be taken out in through a bank or via the car dealership where you’re buying the vehicle. Car loans can work differently depending on what type of loan you take out and what kind of car you’re looking to purchase. Whichever way you decide to loan money to buy the car, you’ll have to agree to pay back the amount you borrowed through monthly payments, plus interest.
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 shop for a car 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 is a PARF car and a COE car?
When you’re shopping for a car in Singapore, you’d most likely come across these two types of cars – PARF and COE.
PARF cars
All new cars come with an Open Market Value (OMV), which is the original cost to produce the vehicle. If you purchase a new vehicle and de-registered within 10 years from its first registration date, you’ll receive a Preferential Additional Registration Fee (PARF) rebate, which is typically a percentage of the OMV.
COE cars
If you wish to continue using your car after 10 years, you’ll need to renew the car’s COE. The renewal amount is dependable on the Prevailing Quota Premium (PQP). Once you’ve renewed the COE (either 5 or 10 years), you’re no longer entitled to the PARF rebate upon the de-registration of the vehicle. Instead, you’ll only receive the COE rebate and hence the name ‘COE car’.
What types of car loans are there?
In Singapore, a car loan is often 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 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. We typically see four types of car loans:
New car loan
These loans are most commonly sought-after by borrowers looking to purchase a brand new car. 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 authorised 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 have 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 refinancing, 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.
How to effectively compare car loans
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, may offer 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 the penalty you’d be charged for repaying your loan early.
Additional fees. Check with your lender if there are any other fees that you need to be aware of.
If the lender requires insurance. If 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 buying car insurance separately.
How much can I borrow?
If you plan to borrow to finance your car, the limit to how much you can borrow will depend on the vehicle’s Open Market Value (OMV) rather than the total cost of your car. The OMV is what your car would be worth if you didn’t have to pay the considerable taxes and duties required to drive a car in Singapore (many of which are stated in the next section).
If your car’s OMV is more than S$20,000, then the upper limit you can borrow is 60% of its OMV. The absolute maximum you can borrow for a car loan in Singapore is 70% of the car’s value – assuming the OMV is S$20,000 or below.
Charges for driving in Singapore
There are a number of standard fees which apply to every car that’s intended to be driven in Singapore. These include:
Certificate of Entitlements (COE). This legal document is compulsory to drive a car in Singapore for either five or 10 years. COE prices can go up sharply during a period of high car demand. COE prices typically range between $30,000 to $40,000, but this varies owing to market demand.
Additional Registration Fee (ARF). A tax you must pay when you register your car. It’s based on the car’s OMV, and it’s at least 100% of the OMV value.
Excise duty. An additional tax you pay on certain goods including cars; it’s charged at 20% of the OMV.
Goods & Services tax (GST). You have to pay GST on your car’s market value and excise duty. Currently, this is charged at 7%.
Tips for better car finance
Learn about:
How to get a lower interest rate
Ways you can reduce 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 its 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.
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 including late payment penalties can ramp up the cost of a loan, making it less competitive. Make sure you consider all costs before you apply for a car loan and use a comparison rate calculator to determine your repayments.
How the cheapest rate could cost you more:
Consider a car that costs $25,000. One lender is offering a rate of 8% p.a. over five years and another is offering a rate of 9% p.a. The only difference is the fees. Take a look at how much it could cost you by just opting for the cheapest rate:
Lender A
Lender B
Loan amount
$25,000
$25,000
Interest rate
8% p.a.
9% p.a.
Loan term
5 years
5 years
Monthly account fee
$20
$0
Establishment fee
$0
$200
Total monthly cost
$532.91
$518.96
Total repayment amount
$32,275
$31,588
In the above example, the interest rate that was higher turned out to be the cheaper option. This was despite the initial upfront cost. Make sure you consider all costs before you apply for a car loan and use a comparison rate calculator to determine your repayments.
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.
Borrow less 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 S$10,000 over a five-year loan term adds up to an extra S$2,000 per year that you’d have to pay back, plus the interest charged on that amount as well. This adds up to approximately S$190 extra that you’d need to pay 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 instalments on the minimum PARF rebate portion of your car loan. For example, if you borrow S$50,000 and you leave a S$10,000 residual balloon payment to be paid at the end of the loan term, your repayments will be calculated based on the S$40,000 to be repaid over five years, plus interest on the entire S$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 a look at this example, a S$70,000 car loan on two different tenure.
Description
Option 1
Option 2
Loan amount
S$70,000
S$70,000
Interest rate
2.7%
2.5%
Loan term
5 years
7 years
Annual interest
S$1,890
S$1,750
Monthly payment
S$1,324.16
S$979.16
Total paid over loan term
S$79,450
S$82,250
In this example, option 1 has a higher monthly repayment but you only end up paying S$9,450 in interest over the term of that loan. By comparison, option 2 allows you to pay S$345 per month less on your monthly repayments. This will definitely make budgeting easier throughout the loan term, but you end up paying S$12,250 in interest over the life of the loan. This is S$2,800 more in interest charges you end up paying overall.
How to apply for a car loan
Learn about:
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
Passport
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 a 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 five 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.
Frequently asked questions
Yes, if you meet the eligibility requirements. As long as you are older than 21, you’re a citizen or permanent resident of Singapore and you can verify that you earn a steady income, you may qualify. You may also qualify for a car loan if you’re a foreigner with a valid work permit.
Yes. Pre-approval is a great way to work out how much you can comfortably borrow and what your repayments will be before you head out car shopping.
The approval process for car loans is typically very quick. In most cases, you could get a conditional approval in a couple of hours, but it may take longer depending on the lender.
Some lenders will place restrictions on the age of vehicles and even some restrictions on some makes and models of cars. If you’re in doubt with the car you want to buy, take the time to discuss with your lender about it.
Yes, you will need to finance at least 30% of the purchase price (for cars with OMV less than $20,000) or 40% of the purchase price (for cars with OMV over $20,000) of the car upfront.
You may set up GIRO so that your monthly repayments can be made automatically. This is where an amount of money is debited from your regular transaction account each month to cover your payment. Some lenders will also allow you to make your payments via cheque or cash if you prefer.
This will depend entirely on the lender you choose and the type of car loan you want. In Singapore, early redemption amount for car loans is calculated based on the Rule of 78, which is a method of allocating the interest charge on a loan across its payment periods. Some lenders will also charge you an early repayment fee for making extra repayments. It’s always a good idea to check whether this fee will apply to your loan before you proceed with the application.
Car loans in Singapore are priced with “flat” interest rates, as opposed to “rest” interest rates in home loans.
Considering a car loan of S$70,000 over 5 years with a flat interest rate of 2.5%. Because this car loan comes with a “flat interest rate,” constant payment of S$70,000 x 2.5%, which translates to S$1,750 of interest annually. Your monthly instalment will be a constant amount consisting of S$145.83 (S$1,750 divided by 12 months) plus a principal payment of S$1,166.67 (S$70,000 divided by 60 months).
You are able to buy your car through a private seller if you wish. You will need to provide details about the car to the lender, such as the Hire Purchase Agreement for the loan to proceed.
Any enquiries you make for any form of credit will be entered onto your credit report as an enquiry with that lender. If your application is declined and you end up submitting another application elsewhere, your report will show two enquiries.
Many banks may decline a car loan application from a borrower with a bad credit history. However, there are some lenders who may let you borrow money even with bad credit. You might want to discuss your application with a car finance specialist before you proceed. This will help you to locate the appropriate lenders to help with your situation and improve your chances of getting your loan approved.
A balloon payment is a residual amount of money that needs to be repaid at the end of the loan term. This type of loan lets you reduce your monthly repayments throughout the term of the loan, then you need to pay off the lump sum amount still owing at the end. You might choose to sell the car to pay off the lump sum amount due or trade it in on another vehicle and refinance that residual amount into your new loan.
However, do understand that with a higher interest rate and five-figure sum PARF value payment on your final instalment, it’s might be quite a strain on your pockets. On top of that, you’ll also incur a significantly higher penalty for early repayment.
The current GST rate in Singapore is 7%. In February 2020, the Singaporean government announced that the GST rate would remain at seven per cent in 2021.
Yes, you may be entitled to a rebate when you deregister your car. This depends on the age of your vehicle, and the remaining balance of your COE. If you de-register your car while it’s under 10 years old, you can receive a PARF (Preferential Additional Registration Fee) rebate. This rebate is tied to the remaining OMV at the time of de-registration.
If you stop making your car loan repayments, the lender may choose to repossess your car. They will sell it in an attempt to get some of their money back along with covering any repossession fees they were charged. If the sale price of the car doesn’t fully cover those costs or pay off your outstanding loan amount entirely, then you may still need to repay the bank for any remaining amounts owed.
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.
Elizabeth Barry is Finder's global fintech editor. She has written about finance for over five years and has been featured in a range of publications and media including Seven News, the ABC, Mamamia, Dynamic Business and Financy. Elizabeth has a Bachelor of Communications and a Master of Creative Writing from the University of Technology Sydney. In 2017, she received the Highly Commended award for Best New Journalist at the IT Journalism Awards. Elizabeth has found writing about innovations in financial services to be her passion (which has surprised no one more than herself).
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