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Car Loans in Singapore (2021)
This guide will teach you about and help you compare car loans.
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.
Personal loans you can use to finance your next car
How do car loans work?
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 $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 $20,000 or below.
Cost of owning a car in Singapore
Car ownership in Singapore is notoriously expensive and comes with a host of hefty fees. To simplify the cost breakdown, we’ll organise the costs into two components — Purchase cost and running costs.
The purchase cost of a vehicle in Singapore is made up of the following fees:
- Certificate of Entitlement (COE). The COE is simply a certificate that grants car owners the legal right to register, own, and use a vehicle in Singapore for a period of 10 years. COE prices for a sedan typically range between $30,000 to $50,000 and are determined by supply and demand of cars in Singapore.
- Open Market Value (OMV). This is the paid or payable price that includes the purchase price, freight, insurance and all other charges when a vehicle is imported into Singapore.
- Additional registration fee (ARF). This tax is imposed upon registration of a new car and scales off its OMV in three tiers: 100% for the first $20,000 of the car’s OMV, 140% of the incremental OMV for the next $30,000, and 180% of the incremental OMV above $50,000.
- Excise duty. A 20% tax of the vehicle’s OMV imposed by the Singapore Customs.
- Registration fee. The registration fee for a new car is currently currently tagged at $220 per vehicle.
- Vehicle Emission Scheme (VES). Introduced in 2018, the VES scheme is designed to help reduce carbon emissions by categorising vehicles into various bands based on emissions across five pollutants. Depending on which band your vehicle falls under, you may either enjoy a rebate or pay a surcharge.
- Goods and services tax (GST). A 7% GST will be levied on the total OMV and Excise Duty.
- Dealer’s commission.
Here’s the total basic cost of a brand new Toyota Corolla Altis in October 2020:
COE (Category A)$36,534
| Toyota Corolla Altis Standard – Auto 2WD | |
|---|---|
| Fee type | Cost |
| Open market value (OMV) | $19,644 |
| Additional Registration Fee (ARF) | $19,644 |
| Excise duty | $3,929 |
| Registration fee | $220 |
| Vehicle emission scheme (VES) | $0 |
| GST | $1,650 |
| Total basic cost | $81,621 |
*Based on the prices published by One Motoring.
Aside from the car purchase cost, bear in mind that you’ll need to pay a host of other maintenance and running cost such as:
- Annual road tax. The annual road tax for a Toyota Corolla Altis is $752 (as of November 2020). You can compute the road tax payable for the vehicle you’re considering with sgCarMart’s road tax calculator.
- Insurance premium. It’s mandatory to drive with an insurance. However, the cost of your insurance premium depends on a range of factors, including the coverage you want, the car you own, your age and driving history. Insurance quotes typically range between $1,000 to $2,000 per year.
- In-vehicle unit (IU) fee. An IU stores a cash card and will automatically deduct the ERP gantry toll or parking fees from the balance. Every registered vehicle in Singapore is required to have an IU installed, which costs $155.80 (inclusive of GST) each and can be purchased at any Land Transport Authority (LTA) approved inspection centres.
- Service and maintenance. To ensure that your car runs smoothly on the road, you’ll need to set aside at least $200 to $500 for periodic upkeep of your car.
- Petrol. Fuel costs are the largest ongoing expense for car owners. For a large sedan, you can expect to fork out approximately $70 or higher per week for fuel. To give you a better idea for petrol cost, the Shell FuelSave 95 comes with a pump price of $2.02 per litre (price accurate as of 30 October 2020).
- Toll/ERP fees. The Singapore’s Electronic Road Pricing (ERP) system requires drivers to pay a toll for driving on certain areas during peak timings, which are usually highly congested. Rates range around $3 to $6 per charge whenever you drive through ERP gantries into the affected areas.
- Miscellaneous costs. Take note of other additional costs such as parking charges, which can easily add up. For example, residents will need to pay $110 per month (passenger car) for a HDB season parking in a sheltered multi-story carpark. If you work in a commercial building, you may also need to pay for season parking.
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 $10,000 over a five-year loan term adds up to an extra $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 $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 $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 a look at this example, a $70,000 car loan on two different tenure.
| Description | Option 1 | Option 2 |
| Loan amount | $70,000 | $70,000 |
| Interest rate | 2.7% | 2.5% |
| Loan term | 5 years | 7 years |
| Annual interest | $1,890 | $1,750 |
| Monthly payment | $1,324.16 | $979.16 |
| 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
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.
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 $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
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.
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