No matter how expensive cars get in Singapore, price is not going to stop some of us from wanting to buy them. Yet how many of us have a hundred grand just rolling around, waiting to be spent on a car? Unless you’ve been saving up for a car quite seriously, you’ll probably have to get a car loan.
And your car dealer knows this. Oh yes, he does. He’s just waiting for the right moment to sweet talk you into his dealership’s in-house car financing scheme.
Don’t fall into his trap! Car dealers are like Thai disco girls; they basically all graduate from the same hypnotism school. It all starts out as a no-obligations chat, but 2 hours later, you walk out of there with empty pockets and no recollection of what just happened.
At the very least, understand what your car financing options are before you tio gong tao.
- OMV, PARF and other acronyms to know
- How much can I borrow?
- How long should my loan tenure be?
- What are my car finance options?
- Car loan interest rates in Singapore
- What else do I need to know?
- I’m all set! How do I apply for a car loan?
COE, OMV, PARF… what are all these acronyms?
Well, of course everyone knows about COE. That’s what makes cars in Singapore so bloody expensive, right? But guess what, COE isn’t the ONLY thing that jacks up car prices like crazy. Check out this list of components that add up to the cost of your car:
|OMV (Open Market Value)||The “real” purchase price of the car EXCLUDING Singapore-specific taxes and duties, such as COE. This is how much your car would cost in countries where car ownership isn’t taxed to hell and back like it is here.|
|COE (Certificate of Entitlement)||The bulk of your costs when it comes to buying a car here. This legal document lets you drive it in Singapore for either 5 or 10 years. It’s currently just shy of $40,000 but the cost fluctuates a lot as it’s dependent on market demand.|
|Additional Registration Fee (ARF)||A tax you have to pay upon registering the car. It’s based on the OMV and is at least 100% of the OMV.|
|PARF (Preferential Additional Registration Fee)||For cars less than 10 years old, you can get this PARF rebate if you decide to deregister it before its COE expires at the 10-year mark. This is pegged to the remaining OMV at the point of deregistration.|
|Excise Duty||Excise duty is basically an extra tax you pay on certain goods (like alcohol and tobacco). For cars, it is 20% of the OMV.|
|GST (Goods & Services Tax)||You have to pay GST on the OMV + excise duty. This is currently 7% but will rise to 9% in the coming years.|
Why do you need to know the exact breakdown of the costs?
Because if you want to borrow money to finance your car, the amount you can borrow is dependent on the OMV, NOT the total cost of your car. Which brings me nicely to the next section…
How much can I borrow for a car loan?
Based on the updated regulations, here’s the maximum amount you can borrow based on your car’s OMV.
|Open Market Value (OMV)||Maximum amount you can borrow|
|Up to $20,000||70% of the purchase or valuation price|
|More than $20,000||60% of the purchase or valuation price|
However, this only indicates a MAXIMUM. The actual amount a bank will agree to loan you may be smaller, as the bank will assess your monthly income, financial commitments and credit score.
In Singapore, one official regulation that applies to your car loan is the TDSR, or Total Debt Servicing Ratio. You can read the linked article for the full story, but in short, it means that you can’t use more than 60% of your income to repay loans.
So if most of your salary is going to big housing loan instalments or if you have enormous outstanding credit card bills to pay, you may not be able to get the full 70%.
Make sure you’re financially prepared for the downpayment of 30% or more, which you need to pay in cash.
How long should my car loan tenure be?
Typically you can borrow the money for up to 7 years. But note that the longer the loan tenure, the more interest you end up paying. As with personal loans, you should pick the shortest tenure you can handle. Just make sure the monthly instalments are manageable.
The one big exception is if you’re getting a loan for an older used car. Because of the way COE is set up in Singapore, car loans are typically only for the first 10 years of a car’s life, after which they are regarded as “worthless”. Therefore, if you’re buying an 8-year-old car, your maximum loan tenure is 2 years as it has only 2 years of life left.
If you’re buying a “COE car”, i.e. a car >10 years old that requires COE renewal, it will be difficult to obtain a car loan, although there are a couple of exceptions like the UOB COE Car Loan and Maybank’s car loans.
For more tips on used cars, read our guide to buying used cars in Singapore here.
OK, got it. So what are my car financing options?
There are 3 options for you to choose from:
- Car dealer’s in-house financing package
- Bank loan through car dealer
- Direct to bank or financial institution
The path of least resistance is the car dealer’s in-house financing package. Like I mentioned, your dealer will probably offer you a deal that’s very difficult to resist. He’s going to offer to sweeteners like “overtrade”, which is basically a trick to let you borrow 70% instead of 60% even if your car’s OMV is more than $20,000. (That means your downpayment is only 30% rather than 40%.)
Car dealers also offer bank loans through banks you know and love, like DBS, OCBC and UOB. Your dealer will also make it a seamless and fuss-free experience for you and throw in freebies to boot. But it’s not because you’re interesting or attractive or intelligent. It’s because banks pay them a commission to sign you up.
The third option is to shop around for your own car loan and go direct to a bank or financial institution. Sure, you might not get an ego massage, but you’ll get the chance to select a more favourable interest rate, saving you a nice chunk of cash in the long run. Here are some popular car loan providers:
Car loan interest rates in Singapore (as of Feb 2019)
So, how much can you expect to pay for a car loan? Currently, most banks offer an interest rate of around 2.78% p.a.
Let’s illustrate some car loan interest rates with an imaginary scenario. You plan to buy a $100,000 entry-level car with an OMV of $20,000. Assuming your income, financial commitments and credit score check out, that means you only need to pay $30,000 upfront as your downpayment.
You plan to borrow the remaining $70,000 for a period of 7 years. Let’s check out the cheapest car loans you can get.
|Car loan||Interest rate||Monthly instalment|
|Standard Chartered car loan||2.68% p.a.||$990|
|Citibank car loan||2.78% p.a.||$996|
|Century Tokyo Leasing||2.78% p.a.||$996|
|DBS car loan||2.78% p.a.||$996|
|Hitachi Capital car loan||2.78% p.a.||$996|
|Hong Leong Finance car loan||2.78% p.a.||$996|
|Maybank car loan||2.78% p.a.||$996|
|OCBC car loan||2.78% p.a.||$996|
|Sing Investments & Finance car loan||2.78% p.a.||$996|
|UOB car loan||2.78% p.a.||$996|
|Singapura Finance car loan||2.99% p.a.||$1,008|
Car loan interest rates change all the time and so do promotions, so before you commit, be sure to check MoneySmart’s car loan wizard for the current rates.
What else do I need to know about car loans?
Apart from getting the interest rate (some financial institutions do not publish theirs) and working out the monthly instalments, you also need to be aware of any additional costs such as:
|Type of fee||Amount||Description|
|Processing/admin fee||At least $200||Usually waived as long as the loan amount is above $20,000|
|Early settlement fee||At least 1% of outstanding loan||A penalty you must pay if you pay off the loan early, pegged to the outstanding loan amount|
|Unpaid interest fee||Typically 20% of unpaid interest||Additional penalty for early settlement (on top of early settlement fee)|
You should also make sure that the bank will actually loan you money for your car. Some banks do not offer car loans for China-made cars or COE cars (>10 years old). It’s good to get a loan approval in principle before you transfer ownership of the car to your name.
I’m all set! How do I apply for a car loan?
Having done the research, you can of course go back to your car dealer and ask them to hook you up with the bank of your choice. But be aware that any online exclusive promo rates may not apply then.
If you’d like to go direct to the bank, you will need to submit an online application or make an appointment in person. It helps to have these documents handy:
- Vehicle Sales Agreement (if you have it)
- Proof of income e.g. salary payslip, income tax statement or CPF statement
- Proof of existing financial commitments e.g. housing loan, personal loan
- Employment details e.g. employer name, monthly income
Need a bit more advice? You can also submit an enquiry through MoneySmart and our experts will guide you through the process.
Car loans: going through your dealer or to the bank directly? Tell us why in the comments.