It’s a well-known fact that cars are expensive in Singapore. For most, the average Joe may not have sufficient finances to pay for the car right from the get go. Hence, we rely on car loans to help finance this expense.
Many a times, buyers tend to deliberate deeply on the car vehicle type, shade of red of the car, and how they would like to upgrade the cars they were about to purchase, while giving less thought about the car loans that they are embarking to take up. Hence, we have come up with a quick guide on car loans, for potential car buyers to assess whether it is a wise decision to purchase a car, or to simply skip these steps and to opt for a car rental in Singapore instead.
Car Loans – How Much Can I Borrow?
Car’s Open Market Value
|< S$20,000||70% of the purchase price or valuation price, whichever is lower|
|>S$20,000||60% of the purchase price or valuation price, whichever is lower|
Banks and financial institutions have allowed car owners to loan up to 70% of the purchase price for Car’s OMV of less than S$20,000 and 60% of car’s purchase price if OMV is more than S$20,000.. However, the final amount that you may be able to loan from the banks would vary depending on considerations like other personal loans, housing loans and individual credit scores.
Pro Tip: Different banks have different rates of car loans and they vary in interest, maximum loan amount and maximum tenure of loan. To facilitate this calculation, banks typically provide a car loan calculator on their website, and it would be advisable to check comparison websites on the best rates of car loans at the moment, and to have a deep ponder on how much loan you are comfortable taking.
One thing to note is the Total Debt Servicing Ratio, which in short, means that you are unable to use more than 60% of your monthly income to repay loans, which also includes personal loans and mortgages. Hence, carefully consider how much cash flow can you comfortably afford, while still sticking to this 60% rule, in deciding your next car purchase.
There are other alternatives that would allow you to meet your commuting and financial needs. One could also opt for a short term or a long term car rental instead, should your expenditure on car and other expenses hit about 60% of your income.
What is My Down Payment for the Car?
Once car loans are settled, the consideration of the down payment of the car comes next. Simply put – the down payment is whatever amount that is left from the maximum car loan that you’ll be getting from the bank or financial institution, paid in cash! Ensure that you have enough cash flow to fork out this expense, as the car loan is unable to cover the full amount of the car’s purchase price.
How Long Can I Spread Out My Car Loan?
For most banks, the average tenure of a car loan is about 5-7 years, with a typical minimum loan amount of S$10,000. While opting for a shorter loan period would accrue less interest, it would also mean that you would have to balance a more hefty monthly installment into one’s budgeting. Prices also differ amongst New and Used cars, but at current, the prices have been fluctuating between 2.28% to 2.88%, depending on the loan provider. Financially savvy buyers would opt for the shortest lease viable as with any personal loan, the longer the tenure, the more interest you’d end up forking out!
How to Apply for Car Loans
Applicants must be:
- At least 21 years old
- Singaporean Citizen/Permanent Resident: Monthly income of at least S$2,000
- Foreign Citizens residing outside Singapore: Monthly income of at least S$4,000. Some banks like UOB and Maybank may also require a local guarantor. Hence with different financial institutions requiring differing documents, do kindly check with the banks directly for full details.
- Proof of employment and income (CPF Contribution History, Payslips, or IRAS Notice of Assessment)
- Documents detailing other financial commitments
- Vehicle Sales Agreement
Car Loans May Not Be All Sunshines and Rainbows
On top of having to manage rising COE prices, car loans interest rates are also on the rise, causing the cost of car ownership to go up significantly. As the US Fed reserve has increased its federal fund rate by 0.75%, largest in 22 years, and this has impacted almost if not all financial products – with car loans not being an exception.
The rise in interest rates means higher car loan costs and that would mean that it would cost more now to buy a car than before. For car loans, banks are hovering their interest rates at an average of 2.28%. In the past 2 years, interest rates for car loans have not exceeded more than 2%! At point of writing, DBS is providing a 2.28% for a minimum loan of $10,000 for a maximum tenure of 7 years, which amounts to a $139/mth repayment plan. Total interest payable over the span of the loan tenure is $1596. This is excluding the usage costs of the car – petrol, ERP costs, parking and the occasional maintenance, which would continue to spike up transportation costs for car owners.
Flexibility in Car Rental
Upon purchase, the car loan is locked up for a minimum of 5 years. Hence, you can also get flexibility from car rental as opposed to purchasing a car as you are able to choose a rental period that is suitable to your needs via a fixed and fuss free monthly commitment. This may be in days, weeks or months instead of years, and it would be easier on the wallet as one need not fork out the hefty down payment, and one may be able to opt for investing their monies instead.
To assess whether long term car rental vs car ownership is best for you, check out:
Should you have made up your mind in renting a car, check out these comprehensive guides to help you along the way:
- Car Rental Guide: Useful Tips for Renting A Car in Singapore
- Comprehensive Guide to Car Rental in Singapore
- A Guide To The Different Types of Car Rental Vehicles
Reach out to BizLink Rent-A-Car!
If you wish to learn more about car rental services and packages, be it long-term car rental or short-term car rental, please do not hesitate to contact our friendly sales associates at BizLink Rent-A-Car Pte Ltd and they will strive to understand your preferences and work out the most suitable rental package for you.