- By design, our taxation structure has been made to disincentivise car ownership. That hasn’t stopped up to 11% of our population from buying their own set of wheels though.
- A Refresher On The MAS Regulations
- What Should You Look Out For?
- The Mathematics
- Personal Loans
- Dealer In-house Loans
- Bank/Financial Institution Loans (Governed by MAS)
- A Little TLDR
- Other Hidden Costs
By design, our taxation structure has been made to disincentivise car ownership. That hasn’t stopped up to 11% of our population from buying their own set of wheels though.
Chances are that the bulk of that aforementioned group would have had to apply for some kind of financial assistance, in the form of a car loan, to purchase their vehicle. This is a highly lucrative subset of the financial industry locally, no doubt aided by the artificial inflation of car costs here.
With that being said, just what do you have to keep in mind before pulling the trigger and landing a car on your figurative drive?
A Refresher On The MAS Regulations
To keep Singaporeans from drowning in debt, restrictions have been put in place to ensure car buyers can manage the monthly payments. Essentially, one will only be able to borrow a certain percentage of the total value of the car.
There are ways around these restrictions of course, but they will incur hefty monetary penalties.
What Should You Look Out For?
You shouldn’t shop for a loan based solely on the monthly repayments. This is because dealers and institutions can tailor tenures, interest rates and even downpayment amounts to meet your requirements. Whilst seemingly a non-issue, this subtle difference can mean significant total repayment sums over the duration of your tenure.
The Mathematics
In tangible figures, let’s assume you are after a brand-new economy saloon that costs $150,000, with an OMV that is less than $20,000. With these figures in mind, know that according to MAS guidelines, authorised financial institutions will only be able to loan you a sum of up to $105,000.
Personal Loans
Banks will only loan you up to $66,500 in an ideal scenario – you’ll need $83,500 in cash to pay off the rest of the car. At the 6.5% Effective Interest Rates (EIR) that the banks have quoted for, you’re looking at $1,040 worth of actual loan payment, with the remaining $260 being set aside for interest. Another advantage of using this is your ability to outright own the car, as you’ll essentially be paying in full with the loan sum dispersed to an account of your choice.
Dealer In-house Loans
These do not follow any specific structure or guidelines, and it is really up to the respective dealer to quote their own interest rates and tenures. Most reputable dealers adhere to MAS guidelines, with seven year durations are common, up to 30% down payment, and you can expect to pay an interest rate of up to 2.98%.
Excluding your down payment, you’d be paying $1,510.75 in monthly repayments, for a total of $126,903. $21,903 will be paid as interest. The total cost of your car including the $45,000 upfront payment is $171,903.
Bank/Financial Institution Loans (Governed by MAS)
Through this avenue, you’d only be able to borrow up to $105,000. On a seven year tenure and at 2.28%, you’d be looking at a monthly instalment of close to the maximum sum you’d be eligible for, after factoring in the other loan commitments you’ll have to sustain.
A Little TLDR
For ease of reference, we’ve put the figures in the hypothetical scenario in a handy table below:
| The Loan Breakdown | |||
|---|---|---|---|
| Personal Loan | Dealer Loan | Bank Loan | |
| Loan Sum | $66,500 | $105,000 | $105,000 |
| Monthly Repayment | $1,468.54 | $1,510.75 | $1,449.50 |
| Total Interest Paid | $21,612.50 | $21,903 | $16,758 |
| Total Amount Paid | $171,612.50 | $171,903 | $166,758 |
Other Hidden Costs
Car ownership isn’t only about paying off your monthly instalments. There’s a need to factor in running costs (fuel/electricity, maintenance), as well as parking fees. There are ways to make car ownership more affordable, though do be prepared to lose out on opportunities as a result of having your funds being tied up in a car!
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Keyword: Here’s What To Look Out For In A Car Loan!