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New Car Loans
Find the right finance to get on the road for less.
It is no secret that Singapore has the highest car prices in the world, thanks to a myriad of government levies and taxes on car ownership and maintenance. Import taxes, COEs (Certificate of Entitlement) and Additional Registration Fee (ARF) can easily go upwards of S$50,000, making it a challenge for an average Singaporean buyer to purchase a car without the aid of car financing.
So if you’re looking to buy your first car or even upgrade, you will most likely consider a car loan to help you finance your new purchase. A variety of different car loans and interest rates are offered by banks, finance companies and dealerships, and by comparing your options and knowing what features to look for you can get the best deal for what you need. Find out all about new car loans in our guide below.
How does a new car loan work?
All car loans in Singapore, in essence, are secured loans whereby the car itself is the collateral that the lender has the right to repossess if you default on your loan. However, the risk of losing the car to the bank is very low as long as you continue to make good on the loan through regular payments. As a secured loan, you’re offered a lower interest rate, which makes car financing in Singapore slightly more do-able. It is also easier to acquire and receive fast approval for car loans if you meet the eligibility criteria and your credit score is in good standing.
According to the Monetary Authority of Singapore (at the time of writing, 19 May 2020), buyers can loan up to 70% of the purchase price for cars with an open market value (OMV) of S$20,000 or less. For cars with OMVs of more than S$20,000, buyers can borrow up to 60% of the purchase price. Keep in mind that the maximum loan tenure is seven years. To put it simply, these regulations mean that you would need to prepare at least a 30-40% down payment depending on the car’s OMV.
What types of new car loans are available?
- Fixed-rate financing
Car loans in Singapore typically charge “flat” interest rates, as opposed to “rest” interest rates on home loans. This means that the monthly interest payment is constant over the tenure of a loan. For example, a 2% flat rate for a S$50,000 loan over 5 years will incur an annual interest of S$1000. These loans are most commonly offered and sought-after by borrowers looking to purchase a new car in Singapore.
- In-house financing
For buyers facing rejection or slow turnaround when trying to get a car loan from traditional banking channels, some finance companies or dealership offer in-house loans that they have already borrowed from the banks. This means that the dealers borrow a large sum of money from banks and then offer portions of it to buyers with difficulties securing loans. The main drawback of such financing is the significantly higher interest rates.
- Balloon financing
A balloon scheme works by excluding the minimum PARF rebate portion of your car loan in the instalments, making the monthly instalments much lower compared to a conventional car loan. For example, if your car loan is S$50,000 and your car’s minimum PARF is S$10,000, you only need to pay instalments based on S$40,000. However, the catch lies in higher interest rates and early repayment penalties. Bear in mind that even though you do not need to pay for PARF at the beginning, you will still need to pay for the PARF it at the end of your loan tenure.
How you can compare new car loans
Listed below are the key factors you should consider when comparing new car loans.
- Interest rate.
Compare the interest rates to check how competitive a loan is. Always be clear about the rate you’re being offered and take the time to compare car loans from other lenders to be sure the offer is competitive.
- Other fees and charges.
For every car, there will be a registration fee of S$220 and a transfer fee of S$25 (before GST). Check with your lender if there are any other fees that you’d need to be aware of before finalising the loan.
- Extra repayments.
Check with your lender on the frequency of the repayments, how you make them and if you’re able to make extra repayments or repay your loan early without penalty. If there’s a penalty, find out how much it will be in the event that you need to sell your car or upgrade before your loan is fully paid. Keep in mind that early redemption amount for car loans in Singapore is computed based on the Rule of 78.
- Eligibility and suitability.
Will you be eligible for the new car loan and does your car meet the criteria set by the lender? You should also check the minimum and maximum loan amounts on offer as well as the loan terms to ensure the loan is right for your needs.
The benefits and drawbacks of a new car loan
- It helps you to fund your new car purchase
- New cars are generally easier to finance, so you could find a lender easily
- The price of the car is often higher than the resale value of the car. This is because all loans attract interest and new cars can lose market value quickly.
Things to look out for about new car loans
- Once a decision has been made to take out a new car loan, it is essential that all the costs associated with the car loan are established with the loan provider. The obvious costs are the interest rates but there are other costs too. These may vary depending on the lender.
- Fixed interest rates are common amongst car loan companies and they will not change throughout the loan period. It is more uncertain choosing a variable interest rate as the loan provider could alter the interest rate at any time depending on the Reserve Bank rates.
- Early repayment fees and redraw fees should be negotiated with the loan provider just in case the borrower’s situation changes throughout the loan period.
Frequently asked questions about new car loans
Where can I apply for a new car loan?
You can apply for a car loan at a bank/financial institute – this is also a common route if you’re in the market for a second-hand car loan. Alternatively, you can apply via a car dealership. Make sure you check your terms with care, as these can differ quite a lot.
How long are the terms for car loans in Singapore?
Typically they range from one year to seven years (which is the maximum loan term legally).
How will I receive my funds?
This varies, so do check. Some lenders might send the funds directly to the car seller, while others will transfer the loan funds to your bank account.
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