There are some incredibly cheap car loans out there, offered by lenders you might otherwise never have heard of that could save you money. The key to finding cheap car loans is to be sure you choose the right loan type to suit your financial needs. It’s also important to check what other terms and conditions might be attached to your car loan, as hidden fees and charges could end up costing you far more than you expect.
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Here are some things to consider when you’re looking for the cheapest car loan.
What type of car are you looking for?
The type of car you want to buy can play a part in the type of car loan you get. It’s also important to take into account the age of the vehicle, as this can also determine the interest rate you end up paying on your loan.
Most banks and dealerships offer very competitive interest rates for customers wanting to buy a new car. The rates are usually lower for new car loans simply because they’re considered to be a lower risk. A new car is more likely to retain most of its value for the majority of the loan term. As the car you purchase is the collateral security for the loan, it’s in the lender’s best interests if they have a good chance of being able to sell the asset for a good price if you can’t repay your loan.
Information on new car loans
Used car loan
In Singapore, a car loan to buy a used car is still a secured loan. So the lender still uses your vehicle as the collateral security for the loan, but there still may be restrictions on the age of the car. With most lenders, a used car needs to be less than 10 years old at the time of application. Some lenders, such as Maybank may provide loans for older cars up to 20 years old.
As it’s likely the value of the car will reduce over the loan term from the original used car price, the lender may consider this a higher risk than buying a new car. As a result, the interest rates tend to be a little higher on these types of used car loans.
Information on used car loans
What Are the Different Loan Types?
Aside from factoring in the age of the car you want to buy to work out your interest rate, lenders will also have a variety of different types of car loans for you to choose from. These include:
Standard car loan
For all car loans in Singapore, the vehicle you buy is used as collateral security over the loan. This simply means that the lender has the right to repossess the vehicle in the event that you stop making your car loan repayments. Their aim is to sell the car in an attempt to recoup some of their money. As the lender has this level of security, the interest rates offered will be lower than those offered for unsecured loans.
Balloon scheme financing
These loans can offer you lower ongoing repayments than conventional car loans as they exclude the minimum Preferential Additional Registration Fee (PARF) rebate portion of your car. However, balloon scheme financing is generally offered by dealerships.
Another financing option available that may be more suitable to some people is a car lease. For the self-employed, a car lease can also be used to buy a car for business purposes. The lender purchases the vehicle and you make regular lease payments until the end of the agreement. A commercial car lease may give you the option to purchase the car at the end of the lease term at a reduced price or you can choose to give the car back and enter into a new lease agreement for a different vehicle.
Car hire purchase
Self-employed people also have the option of financing a car for business purposes through a car hire purchase option. Each repayment made on a hire purchase agreement is reducing the balance owing on the purchase price of the car. It’s important that self-employed borrowers discuss the different car loan and financing options with an accountant before making a decision. There are multiple cash flow and tax implications that may apply with different types of finance, so it’s best to discuss which option will be best suited to your business needs.
Things You Need to Know and Watch Out For
Before you apply for any loan, it’s always a good idea to check as much as you can about the offer you’re getting. Here are some things you need to look for before you proceed.
The interest rate charged on your car loan will play a part in how much your repayments will be, so this is the most important factor to look out for. Always know what rate you’re being offered and take the time to compare other lenders to be sure the offer is competitive.
Car loans can be set over loan terms as short as 1 year or up to as long as 7 years. Choosing a shorter loan term can reduce the amount of interest you pay on your loan overall and get your debts paid off much faster, but will increase your monthly payment amount.
Likewise, opting for a longer loan term can reduce your monthly payments but will increase the amount of interest you pay in total and take you longer to pay off your debt. Choose a loan term that suits your financial goals and your income.
Ask what your minimum repayment amounts will be and check that this is affordable on your income and budget before you proceed.
Ask if you’re able to make extra repayments off your loan at any time electronically or by phone banking. You might also want to check whether you’re able to nominate to make extra payments as part of your regular repayment agreement.
Administration or processing fees
Many dealerships will charge an administration or processing fee to cover their costs of creating your cheap car loan documentation. This might be as low as $100 but can be as high as $800 or more. If you proceed with a loan application with a finance person through the car dealership, you might even be charged brokerage fees on top of the administration fees, raising your costs even more. However, this fee serves only to increase the dealership’s sales margin, so try to negotiate it down or get it waived.
Early repayment fees
Most car loans will charge you a fee if you repay any or all of your loan before the agreed loan term date. If you intend to make extra repayments on your debt to pay it off sooner, check how much you might be charged.
As your car is used as collateral security for your loan, the lender may insist that the vehicle is properly insured at all times until the loan is fully repaid.
Ways for getting cheaper car loans
Regardless of the interest rate you see advertised on your bank branch’s window, it may be possible to get a lower interest rate if you’re willing to negotiate. Here are some tips for reducing the interest rate you pay with various lenders.
Shop around first
If you take the time to shop around on a car loan comparison site, you’ll get a strong idea of what interest rates are available with a range of lenders. This gives you plenty of ammunition when it comes to negotiating with your own lender.
Negotiate a cheap car loan
If you’re keen to stay with your own bank for your car loan needs, take your comparison shopping 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.
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 some 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 ‘trail’ 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.
Make sure you haggle and negotiate on the rates you’re offered through the car dealership.
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, ask if they will give you a discount on your car loan if you add that to your package.
Ways for reducing monthly repayments
It’s always possible to reduce the payments you make on your car loan 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.
Lowering the interest rate
By reducing your interest rate even a little, you should end up paying less on your monthly payments. This is one of the primary reasons why you should always take the time to check comparison sites before you apply for any type of finance.
Lowering your loan amount
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. You can reduce the amount you need to borrow by offering a trade-in of your old vehicle or even paying a slightly larger deposit out of your savings. Each of these options will help to reduce your loan amount, which naturally keeps your monthly payments as low as possible.
Residual balloon payment
When you apply for a car loan that has a residual balloon payment remaining at the end of the term, you can drastically reduce your monthly repayments. For example, if you borrow $50,000 and you leave a $5,000 residual balloon payment to be paid at the end of the loan term, your repayments will be calculated based on the $45,000 to be repaid over 5 years, plus interest on the entire $45,000.
While this might end up much easier on your budget for monthly repayments, it’s always important to check that the balloon amount owing at the end is likely to be repaid and covered by the PARF value of the vehicle after that time. Otherwise, you’re likely to be stuck with a debt that is due immediately.
Longer loan term
Another way to reduce your monthly repayments is to extend the 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.
Case study 2
Let’s take this example of loan term on a $50,000 car loan.
|Total Paid Over Loan Term
In this example, Option 1 has a higher monthly repayment, but you only end up paying $5,450 in interest over the term of that loan. By comparison, Option 2 allows you to pay $238.09 per month less on your monthly repayments. This will definitely make budgeting easier throughout the loan term, but you end up paying $7,630 in interest over the loan term. This is $2,180 more in interest charges you end up paying overall.
Things you will need for your application
Below is a checklist of some of the information and documentation you may need to supply for your cheap car loan application.
You will need to supply some form of identification when you apply for a car loan to verify who you are, such as your NRIC or passport (for foreigners).
When you apply for a loan you will need to provide some verification of how much you earn. The income documents may be computerised payslip, income tax notice of assessment or latest six months CPF contribution and work permit (for foreigners only). If you’re unsure, go the extra mile and contact the lender beforehand to find out the various types of documentation they’d require from you.
Self-employed borrowers may need to provide income tax assessment notices for the past two years.
Your car loan application will include a section for you to input your employer’s details. This will include your employer’s contact information and the length of time you’ve been employed by that company. If you’ve only worked in your current job for a short time, the lender may want information about your employment history for the past three to five years to show that you’ve maintained a steady job over this time.
Some banks may want to see some type of evidence of your savings history in order to qualify for a loan. This can be done by providing the past few months’ worth of bank statements showing your income and savings amounts.
In order to be approved for most loans, lenders may want you to have a good credit history. If you’re unsure what your credit history might look like, you may want to order a copy of your credit report to see if any defaults have been listed there. Of course, if you don’t have any credit history at all yet, you might be able to show your ability to make payments on time by providing recent bills you’ve paid in the past few months. These might include phone bills, electricity bills or any other regular payments you need to make.
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 who will also discuss possible interest savings and request for all the documentation to support your application. This includes your identification, payslips or income verification, income tax notice of assessment and any other pertinent information required.
Step three. After submission of all necessary documents, you should be informed of your finance approval within 24 hours to 3 business days.
Step four. Once your final approval has been received, you’ll be asked to sign your loan documentation and make payment for your first instalment. This is your agreement with the bank to repay the amount of money you’re borrowing over a specified loan term at an agreed interest rate. When this has been done, the lender will release the money from the proceeds of your loan to the car’s seller and you get to drive away in your new car.
Frequently asked questions about cheap car loans
Can anyone apply for a car loan?
Yes if you meet the eligibility requirements. As long as you are older than 21, a Singaporean, PR or foreigner with a valid work permit and you can verify that you earn a steady income you should qualify.
How much can I borrow on a car loan?
According to the Monetary Authority of Singapore (at the time of writing, 2 June 2018), buyers can loan up to 70% of the purchase price for cars with an open market value (OMV) of $20,000 or less. For cars with OMVs of more than $20,000, buyers can borrow up to 60% of the purchase price.
Can I get a pre-approval for a cheap car loan?
Pre-approvals are not very common among lenders in Singapore, some dealerships and lenders do offer it as an option, especially for those with less ideal credit. Pre-approval means you have been approved for a specific loan amount and you can use up to and including that amount when you go out to buy your car.
How long does it take to get an approval?
The approval process for car loans is usually very quick. In most cases, it should be anywhere between 24 hours to 3 working days.
Can I include the insurance and on-road costs in my loan amount?
No, insurance, road taxes and any other on-road costs are excluded from the loan amount.
Are there any types of cars I can’t buy with my loan type?
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 check with your lender before committing to purchase the vehicle.
How do I make payments off my loan?
Your repayments can be made automatically via GIRO on a monthly basis with most lenders. 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 cash or cheque.
Can I make extra repayments off my car loan?
Yes, but you’ll incur early settlement penalties.
How is the interest calculated on my loan?
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 $50,000 loan over 5 years will incur an annual interest of $1000.
Can I buy a car privately or do I have to buy through a dealer?
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 registration number, registration date and make for the loan to proceed.
Does applying for a car loan affect my credit report?
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.
I’ve got bad credit. Can I still apply for a cheap car loan?
Many banks may decline a car loan application from a borrower with a bad credit history. However, there are some lenders out there willing to let you borrow money even with less than ideal credit score.
Should I choose a balloon payment at the end of my car loan?
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 and then you need to pay off the PARF amount still owing at the end.
Will I still owe the bank money if they repossess my car?
In the event that 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 the remaining amounts owed.