4 Factors to Consider Before Taking Up A Car Loan
Thinking of buying a car? Many times, car-buyers spend a long time deliberating on which car to buy without giving enough thought to the financing of the car. As we all know, cars are expensive purchases in Singapore. Not only that, there are lots of other hidden costs as well - road taxes, car loan interest and even car insurance. If you aren’t quite sure how a car loan works here, fret not as DirectAsia gives you a crash course on what to consider when choosing the right car loan.
1. How much you can borrow
Do you know how much you’d need to afford a car in Singapore? Here’s an infographic that gives you an estimate of the total amount you’d need to fork out to own a car here. The maximum amount you can borrow is dependent on several factors. The first is the car’s Open Market Valuation (OMV). Based on current rules, you can borrow up to a maximum of 70% of the car purchase price if the OMV is lower than or equal to S$20,000. If the OMV is higher than $20,000, you’ll only be able to take a loan of up to 60% of the car purchase price.
This also means that you’ll have to be able to put down at least 30 to 40% of the car purchase price as deposit. Say if you are looking at a car that costs $70,000, a 30% deposit means $21,000 straight out of your pocket.
Other factors that will affect how much you can borrow include your monthly income and current financial commitments, such as your mortgage, personal loan and any outstanding debts on your credit cards. The bank will examine your credit score before deciding whether you qualify for a loan or how much money they are willing to disburse to you.
2. Loan Tenure
Current rules allow a maximum of 7 years for the loan tenure of a car loan. However, taking the longest tenure also means you end up paying more in interest. You should ask your financier to provide a loan repayment schedule for you to assess the shortest tenure you can take that still allows you to pay comfortably every month.
3. Loan from a bank or car dealer?
This question seems to be one of the most debated amongst car buyers. Car dealers in Singapore usually offer an in-house financing package to entice car buyers by making it a one-stop shop. This means that you will not need to go to the various banks and ask them about their individual car loan rates. However, the latter usually gives you more options and with the availability of a number of car loan comparison sites, you don’t really need to do a lot of legwork to get a better loan.
Taking your loan from a bank may also be a little more hassle as not all banks disburse loans for all car types. Do ensure you check that the bank will lend you the money based on your car model.
4. Fees to look out for
Like so many other financing products, car loans usually come with a number of other fees that are not reflected in the advertised rates. You can expect additional costs such as:
- Administrative fees - at least $200. Could be waived if your loan is above $20,000.
- Early Redemption penalty - like many other loans, the bank will charge you a fee if you decide to pay off your loan in a lump sum. This is usually about 1% of the outstanding loan amount.
- Interest rebate - the bank will also charge a fee on the interest payments you get to save on early repayment, usually at 20% of the outstanding interest payments liable.
The above means that when you decide to pay off your loan early, you might end up paying more than sticking to the loan tenure. Do your calculations to ensure that an early repayment will save you more before you decide to pay off your car loan.
What you need to apply for a car loan
All ready for your dream car? Before you apply for a car loan, ensure that you have these details and documents on hand:
- Vehicle Sales Agreement (if applicable)
- Employment details including company name, designation, length of service and monthly income
- Details of existing financial commitments e.g. mortgage loan, personal loan, credit cards
- Income documentation such as a computerised payslip or IRAS Notice of Assessment. If your length of employment is less than 1 year, your latest CPF Contribution history statement would be required
You’ll also need to be above 21 years old and the minimum monthly income required for a Singaporean is at least S$2,000 and S$4,000 for foreigners.
While car financing is no doubt an essential step towards your car purchase, don’t forget about getting your car insurance as well! DirectAsia provides a full suite of car insurance for all your needs, including comprehensive car insurance with optional benefits. Get a convenient quote now so that you can start to drive your new ride on the roads as soon as possible!