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Used car loans in Singapore
Want to snap up a bargain with a second-hand car? Find out what loans can help you pay for your purchase.
A pre-owned vehicle can make a good choice if you need the convenience but are unwilling to take up a longer and larger financial commitment with a brand-new vehicle. With second-hand cars, you may get a good deal and there can also be more room to negotiate if it’s a private sale.
If you don’t have the full amount ready to make your purchase, you have a range of auto financing options available for consideration.
Car loan comparisons for your next used car
Types of loans you can put towards a used car
You have several options when it comes to selecting a loan to purchase a used car. Some of these include:
- Fixed interest rate financing
- In-house financing
- Balloon scheme financing (only available for PARF cars)
You typically have two options when you apply for a used car loan: the first is to contact the dealer directly for auto financing; the second is to apply for the loan from a bank or finance company before purchasing the vehicle from the dealer.
If you’re going to shop for a loan directly from a bank, here are some popular car loan providers:
How does a used car loan work?
A used car loan works the same way as a new car loan, where the car itself is the collateral pledged to the lender who has the right to repossess it if you default the repayments.
Lenders are required to abide by car loans regulations from the Monetary Authority of Singapore (MAS), such as a maximum seven years tenure and 60 to 70% financing depending on the car’s OMV, but the interest rates offered differs from bank to bank. The terms and conditions, as well as flexibility for the loan may also differ. The car’s age and condition of the car also play a crucial role in the loan approval as lenders may deem the vehicle a high-risk asset.
Once you’re approved for the loan, the lender may prefer to pay the car seller directly or may send the funds to you to pay the seller. Discuss this with your lender before you apply.
What is the maximum loan tenure for a used car?
Due to the Monetary Authority of Singapore (MAS) regulations (Notice 642 – Motor Vehicle Loans), car loan tenures are capped at a maximum of seven years. For a used car younger than ten years (PARF cars), lenders can provide financing for ten years minus the age of the car or seven years, whichever comes first. For used cars older than ten years (COE cars), lenders can loan up to seven years or until the COE expires.
However, depending on the car’s age and its condition, lenders may consider it a high-risk collateral and reject your loan application.
How much can I borrow?
Based on MAS regulations, you may borrow up to 70% of the car purchase price if its Open Market Value (OMV) is lower than or equal to S$20,000. If the vehicle’s OMV is above $20,000, you’re only entitled to loan amounts up to 60% of the car purchase price.
|Open Market Value (OMV)||Maximum Finance Amount|
|≥S$20,000||60% of the purchase price or valuation price, whichever is lower|
|≤S$20,000||70% of the purchase price or valuation price, whichever is lower|
Other factors that will affect the loan sum are your credit history, monthly income and existing financial commitments such as your credit cards, housing loan, personal loan, or another car loan.
How can I get the lowest interest rates for my car loan?
When you’re purchasing a car, most car dealers will offer in-house loan packages and these may even come with freebies as an incentive. While taking up in-house financing seems like a seamless and hassle-free experience, know that dealers generally impose a markup on the banks’ interest rates for extra profit.
However, if you shop around for your own car loan and go directly to a bank or financial institution, you’ll most likely get a much favourable interest rate.
For used car loans, most banks offer an interest rate of around 2.78% p.a. (as of June 2020).
Should I compare advertised interest rate or Effective interest rate?
While it may seem that they it doesn’t make it difference which provider you take a loan from if their advertised annual interest rates are the same, do note that their effective interest rate (EIR) may vary.
This is because the EIR works along a compounding effect and takes multiple factors into consideration, such as frequency of amortised installments, administrative and processing fees.
What types of used car loans are available?
All car loans in Singapore are ‘secured’ loans. This means that the car purchased is pledged to the lender, who has the right to repossess if you default on your loan. Your options for used car loans are typically one of these financing schemes:
- Fixed interest rate financing. Car loans in Singapore typically charge ‘flat’ interest rates, meaning that the monthly interest payment is constant over the tenure of a loan. For example, a 2% flat rate for a $50,000 loan over five years will incur an annual interest of $1,000. These loans are most commonly offered and sought-after by borrowers looking to purchase a used car in Singapore. Check that the used car will be eligible for the loan. The interest offered largely depends on the age of the car, the loan tenure and purchase price.
- In-house financing. Buyers facing difficulties in getting a car loan approval (either due to bad credit ratings or falling below the income criteria) from traditional banking channels may opt for in-house loans offered by some finance companies or dealership instead. The main drawback of such financing is the significantly higher interest rates.
- Balloon scheme financing. This type of scheme works better for used cars compared to new cars, but is often considered extremely risky. By excluding the minimum PARF rebate portion of your car loan in the instalments, your monthly instalments are much lower compared to a conventional car loan. However, to reap the benefits of this scheme, you must have driven the car until it’s ready to be scrapped so you’d be assured of having the money to pay off the minimum PARF rebate at the end of the loan tenure. Otherwise, you’ll not only face higher penalties for early repayment, and still have to keep paying off the loan’s higher interest rate.
How do I compare used car loans?
Securing the right financing is as important as finding the right car. Car loan terms in Singapore can go up to a maximum of seven years, so it is a long-term financial undertaking. Here’s what to look at to find the right finance:
- Interest rate. The interest rate should be the first thing you should consider when you are comparing used car loans. Compare loans with similar features from other lenders to ensure you get a competitive rate.
- Fees. Lenders can charge a range of fees on used car loans, so check with your lender if there are any other fees that you’d need to be aware of before finalising the loan. Make sure you’re clear of penalties such as early repayment fees. Dealerships may also charge dodgy “administrative fees”, which you should not pay.
- Flexibility. Find out how flexible your loan can be. Can you make additional and lump-sum payments during your loan term? Are you able to repay your loan early without penalty?
How can I apply for a used car loan?
Getting a car loan is a huge financial commitment, so avoid rushing into it unless you have done your due diligence and research. Compare all the loan options available and once you have selected the offer that best suits your needs, visit the lender’s website and begin the loan application.
Eligibility requirements differ between lenders, so be sure to confirm whether you will be eligible before you apply. Generally, you need to be over the age of 21 and be receiving regular income payments into your bank account. You may also need to have a good credit rating.
Below is a checklist of some of the information and documentation you may need to supply for your car loan application.
Frequently asked questions
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