By: 
People need cars – especially if you’re living in Singapore. Sure, the MRT is highly affordable (plus there are credit card rebates), and the government plans to make cars obsolete within the next two decades, but still, that’s two whole decades away.
In the meantime, riding the MRT isn’t always as fast or as safe as you’d want, considering the past breakdowns. If your workplace or school is far, it’s going to very sian.
On the other hand, cars are expensive as can be in Singapore, especially new ones. Throw in COE and you probably can’t pay for the car in one shot.
But hey, there are still situations where you really need a car. Perhaps your workplace is too far for public transport, you’re welcoming a new family member or that you want to become a Grab driver to earn some extra income. Or perhaps you need a car for the heck of it.
That means you need a car loan / car financing – and the best one at that.
So, you have to compare different car financing alternatives, which can be quite a challenge, mainly if you haven’t done that before. Considering down payments, rates, installments, and tenures across multiple car loans can seem daunting.
Read this guide below, and you’ll understand how car financing in Singapore works. That way, you’ll avoid choosing a bad car loan that you’ll end up regretting.
What are some of the terms you need to know before buying a car? Are there acronyms? If you want the best car loan, let’s decipher the lingo first:
– Annual percentage rate (APR): this rate includes charges and interests, and you’ll see it as a yearly percentage. A high APR makes your car loan more expensive, so you should compare different options before settling on the right car financing deal.
– Principal: that’s the original sum you’re borrowing
– Term/tenure: your car loan’s length – up to seven years
– Installment: the monthly sum you’re paying
– Processing fee: some banks in Singapore impose an admin fee. However, if you’re borrowing over $20,000, your bank or financial institution can disregard this charge.
Car loans in Singapore can be secured or unsecured. For secured loans, you will need to hand in collateral. For unsecured loans, you do not need to submit collateral. You – the customer – can choose a financial institution or bank that you like, apply for a sum of money and then repay that sum according to a specific schedule.
Of course, each installment includes interest, and you can receive a penalty if you skip one of those monthly payments.
So, here’s what’s different about car loans compared to other financing options:
– They’re secured, so you can’t use them for anything else apart from purchasing a vehicle.
– The maximum allowed tenure is seven years.
– The principal sum you’re eligible for depends on the vehicle’s Open Market Value (OMV). Below $20,000: Maximum 70% of the OMV; above $20,000: Maximum 60% of the OMV.
Just by looking at that last requirement, a stark reality takes shape: you’ll need at least 30-40% of your car’s OMV to put as a down payment for your car loan.
If you’re trying to purchase a new car, that advance will be pretty steep.
But hey, is it a must for you to buy a brand new car? What about a used / second hand car that is still young and running?
Some banks in Singapore subtract your vehicle’s age from that original ten-year period the car’s good for – and that’s the maximum tenure they allow.
So is it better to have a longer-term car loan or a shorter-term one?
The answer here depends on your budget. If you can afford a higher installment, it’s good to keep your car loan short and sweet so that you can be debt-free faster and save money in the process. However, it’s not wise to make unnecessary sacrifices to disrupt your life for a shorter loan term.
Here’s an example to think about:
Let’s say your car loan gets you $30,000 at a 4% rate.
– If the tenure is 36 months, your installment is $933, and the total interest is $3,600.
– If the term is 60 months, your installment is $600, and the total interest is $6,000.
Basically, a shorter car loan is 30% more expensive per month and 30% more affordable in the short term.
Well, if you have decided not to borrow from your friends and relatives, your next option is a car loan.
If you’re trying to get a car loan in Singapore, you have two primary possibilities that we’ll discuss below:
1. Direct lending
2. Dealer financing
Direct lending means borrowing money from a bank or a licensed moneylender in Singapore. Here are the main points to consider:
– Direct lending is cheaper than car dealers’ financing.
– You should compare several options before sending in your application. That’s both a blessing and a curse because you can pick the best solution for your needs, but you also have to spend the time doing the research.
Now let’s see how banks and licensed moneylenders compare when it comes to car loans:
– Banks offer much lower interest rates, whereas licensed moneylenders’ rates can reach up to 4% a month.
– Banks have more stringent eligibility conditions and take longer to approve your loan.
– If you have a lower income and your credit rating isn’t that great, you have more chances to obtain a car loan approval with a licensed lender.
Of course, along with all the bills that we need to pay, we want to avoid choosing a burdening car loan. If you are looking for one, why not try our free comparison form here?
Car dealers in Singapore work with specific banks, which takes away much of your choice power. However, you have someone else doing all the paperwork for you, and that’s always an advantage if you’re stretched for time.
On the downside, car dealers require a commission to get you different offers and deal with your paperwork. That means these in-house car loans are more expensive than direct lending.
Pro tip: Some car dealers allow you to negotiate your loan conditions. Even a 0.5% discount in interest is significant over a longer term; consider that the total interest for a $30,000 car loan with a 4% rate is $6,000 for a 5-year tenure, but it’s just $5,250 for a 3.5% rate.
Getting a loan is a serious financial decision. Before applying for a car loan, consider these factors below:
Checking your credit score is essential because it saves you the hassle of sending applications that bounce. Besides, too many rejected car loan applications within a short time frame decrease your credit score even more.
So watch out for that.
| Rating | Score | Probability Of Default |
|---|---|---|
| AA | 1911 – 2000 | 0 to 0.27% |
| BB | 1844 – 1910 | 0.27% to 0.67% |
| CC | 1825 – 1843 | 0.67% to 0.88% |
| DD | 1813 – 1824 | 0.88% to 1.03% |
| EE | 1782 – 1812 | 1.03% to 1.58% |
| FF | 1755 – 1781 | 1.58% to 2.28% |
| GG | 1724 – 1754 | 2.28% to 3.48% |
| HH | 1000 – 1723 | Over 3.48% |
Source: Credit Bureau Singapore
As you can see from the table above, a higher credit score implies a lower chance of defaulting on your car loan. That’s why banks are more likely to grant you convenient loans with affordable rates if your credit score is higher.
What if your credit score isn’t that good?
Considering car loans can be secured, you have more approval chances than unsecured loans because the bank can collect your vehicle in case of loan default.
However, if you’re credit score is below the average, consider other alternatives in Singapore. These agencies place more importance on your current income level than your rating, especially regarding secured loans.
Pro tip: Make sure the credit score is correct before applying for any loan, car loans included.
For instance, some utility bills haven’t been registered, or an algorithm error sneaked up on you. In this case, your wrong credit rating decreases your car loan approval chances unfairly.
If you decide to choose an in-house car loan, you should first find the best agency for your needs. Remember that these lenders will impose different conditions based on:
– Your credit score
– Your principal amount
– Their risk appetite
Don’t just focus on interest rates and monthly installments. Compare your car’s end price and also the interest that will have accumulated throughout your loan tenure.
If you’ve decided not to use our form, here’s how you should proceed:
1. Open a car loan calculator for Singapore.
2. Fill in the sum you want to borrow, the interest and the tenure.
3. The calculator gets you the monthly instalment which includes interest.
4. Multiply this sum by the number of months in your term.
5. Add the advance payment to this number to get the total cost of your car loan.
As we’ve discussed above, a car loan in Singapore only covers 60-70% of your vehicle’s OMV. As a result, you’ll need to fork out a 30-40% down payment that depends on that car’s price.
However, more significant advance payment isn’t necessarily a bad thing. Here are just some advantages:
– The bank, financial institution, or in-house dealer can get you a better offer with lower rates.
– Decreasing the principal loan amount means lowering the monthly installments and your tenure.
– If you get into a car accident after which your vehicle is destroyed, your insurance will pay for the whole remaining loan and even a portion of your down payment.
When you’re budgeting for this down payment, include additional costs like licensing fees and taxes. Also, remember that you’ll need to apply for a spot to park your car, which is also known as season parking in Singapore.
Your income influences how much money you’re eligible for. Besides, if your credit score isn’t great, but your current income is high-level, you have more chances to get a larger car loan with convenient terms.
But what if your income isn’t that high and you also want to access a more significant amount?
You have two solutions:
– Consider a co-signer who will co-guarantee the loan with you so that the banks deem you less of a risk.
– Adjust your budget, ideally by increasing your budget. You can try a side hustle, investing your money, or even renting a room in your house.
New and used vehicles each come with their own set of advantages and disadvantages, so you’ll have to evaluate these factors through two lenses: your budget and your needs.
For instance, new cars:
– Will last longer
– Aren’t at risk of requiring repairs within the next couple of years
– Are more economical because they use energy-saving technologies
– They are eco-friendly, so they impact the environment less because they function on less fuel
On the other hand, new cars are costly in Singapore, and that’s why people with limited budgets consider used vehicles.
What are the advantages of a used car loan? They are:
– They cost 40-50% less than a new car.
– The down payment is half as much as for a new car, which means you’ll need less time to save money. Alternatively, you’re more likely to obtain a personal loan for that down payment, especially if a below-average credit score worries you.
– The monthly interest is half as much.
– The deadline is shorter.
– The installments are reduced by half.
– The total interest you repay can be up to 25% of the total interest you’ll have to fork out for a new car loan.
However, you still need to consider costs that will sneak up on you, such as car maintenance costs, car repairs, ERPs, road taxes, insurance and fuel.
Before getting a car, people mainly focus too much on the car and too little on the car loan. If you make this error, you’ll see the consequences mould in the shape of money lost over the long term.
Here are the most common ways in which people tend to lose focus of their car loans:
Don’t bite off more than you can chew!
We get it; beautiful cars are expensive. If you’re also getting one with multiple features like parking sensors and auto hold, its cost will increase exponentially.
But remember this: never get a loan that you can’t afford.
Sure, making sacrifices to get a more significant amount can seem feasible at first. However, life is unpredictable, and emergencies overturn tight, inflexible budgets. So it’s always best to leave some leeway in your monthly finances and make sure that your monthly installments don’t strain your budget.
Apart from that monthly installment, you’ll also need money for:
› Gas
› Insurance
› Taxes
› Parking
› Repairs
› Cleaning the vehicle
Remember that car dealers know how to persuade their customers into more expensive loans. After just a few minutes’ discussion, that dealer will sense your weak points, and they’ll learn how to use those things to their advantage.
For instance, an expert dealer can speculate your need for comfort or ease of use. Next, they will begin praising a high-cost car that’s good but more than you need – and definitely, more than you can afford.
Remember to filter all the car’s features through the lens of your needs.
Once your instinct tells you that something’s iffy, you have the option of walking away at any time before signing that contract. Red flags include:
› Hidden costs
› Lack of transparency
› Not being explained the contract
› Excessive interest rates
› Unfair practices
So don’t just shrug off these problems. Instead, make sure you understand the contract, and you’re okay with all the terms. If your loan agent doesn’t provide satisfactory explanations, remember that you’re free to go.
But next time, remember to analyse different offers and read user reviews before choosing a financial institution or car dealer.
Following your instinct is often the best way to go, but listening to your gut feeling isn’t the same as letting your emotions overwhelm you. This happens mainly to people who’ve never purchased vehicles before:
You fall in love with a specific model, you take it for a test drive, and that feeling of exhilaration takes charge over your frontal cortex.
However, letting that emotional part of your brain control your decisions is a mistake. You need that thoughtful cortex of yours to analyse different deals and to make valuable compromises.
So, never get irrationally attached to a car – at least not before buying it. Instead, always keep an eye out for better deals and keep your options open.
The cornerstone of your car loan application is choosing the best financing partner for your needs. So, you’ll need to invest quite some time for research to analyse your options.
Money Kinetics can help save that time if you’re looking for a car loan. Once you submit your application, we’ll give you access to many customised offers across Singapore.
Thus, you can compare various offers seamlessly because we review all the most critical factors that affect your car loan.
After choosing the right lending solution, you’ll need to prepare your documents:
– Vehicle sales agreement: This document confirms the car’s sale and includes all the necessary details regarding that sale. So, make sure you understand all those details before getting this contract to your future lender, especially the total sum you have to pay, the interest, and the monthly installment. As a precaution, double-check the possible consequences in case you default on your loan.
– Proof of employment: Every lending agency/financial institution in Singapore is legally obliged to make sure you can repay the loan. So, they’ll need evidence that you’re employed or otherwise benefit from a steady income. So, if you have other income sources apart from your salary, include those proofs in your application.
Usually, the documents that attest your income includes your payslip, bank statement, income tax statement or your monthly electricity bill.
– Proof of identity: NRIC/Passport/Employment Pass
– Authorisation form to check full settlement
– Car registration
Life is riddled with unpredictable events that ruin your plans. So even if you chose the most affordable car loan that you’re sure you can repay comfortably, the loan tenure is still a pretty long time.
Remember how unexpected the COVID-19 pandemic was.
Many people worldwide suffered its consequences, from debilitating post-COVID symptoms that made work impossible to actual job loss because of market restructuring.
We’re not saying you’re going to face a new pandemic any time soon, though that’s entirely possible as global warming melts more of those glaciers where ancient bacteria are frozen. Yikes.
However, unexpected medical bills, accidents, and retrenchment can happen at any time. So, if you can’t repay the car loan, you can:
– Sell the car if it costs more than the remaining loan balance
– Renegotiate your loan terms with your lender
– Refinance your loan if your interest rate is low, while the car’s open market value is still high
Getting a car loan is a smart way to finance purchasing a new or used car in Singapore. However, you need to compare various options before choosing the right one. For example, remember to read reviews on the different licensed moneylenders in Singapore before getting a loan.
Remember that loan agencies and car dealers will impose distinct conditions. Two people with the same credit score and income can receive very different offers from various financial institutions in Singapore.
To save time, you can get quotes for free here.
