So the final tweaks on car loans have come into play. Well it’s about time. Another month or two, and “loan sharking” would have become a requirement on a car salesman’s resume. In this article, we look at how the loopholes have been sealed (and how one segment of the car market is set to take off). Know before buying!
The Two Big Changes to Car Loan Restrictions
The first change: Starting from 5th April 2013, car loan restrictions will be lifted for 60 days. This only applies to second hand cars, which were in the dealer’s inventory before the restrictions (25th February, 2013).
The second change is the closing of loop holes. Licensed moneylenders, and dealerships’ in-house loans, are now subject to the same restrictions as banks. You get 60% financing for car loans, and a pamphlet on good walking shoes if you need more.
Let’s see how that affects you:
- Patience Just Doubled in Value
- Second-Hand Cars Might Get Pricier
- Reconsider Selling Your Car
- Brace for a Personal Loan
1. Patience Just Doubled in Value
Look, I know the restrictions are a pain. That’s what happens when we leave a problem too long (i.e. the COE system), then scramble like a breakfast egg to fix it. So excuse the irony when I say this, but…you should probably wait some more.
The loan restrictions are crashing COE prices; we’re already people flocking to showrooms. But the market is far from bottoming out. I spoke to parallel import car dealer Mikey Oon:
“Right now the rush is to get big cars. Those who can make down payments are hurrying to buy Mercedes, BMWs, and so on, because the falling COE makes them affordable.
But I think if you wait another three or four months, the prices can fall even further. COE was really inflated at the time of the restrictions. And I feel there’s little harm in waiting, because even in the long term, I don’t foresee that COE prices will return to their previous levels.“
No kidding. That’s backed by the MAS press release. Note the last line:
“MAS will continue to monitor developments in the car market and COE premiums, and will recalibrate the financing restrictions for new and used cars when appropriate.”
Translation: COE prices have become MAS’ personal whack-a-mole machine. Every time high prices appear, the hammer will come down again. We may have seen the end of the $80k COE.
With that mind, wait before buying a car. Give it about three or four months if you can; it can’t hurt.
2. Second-Hand Cars Might Get Pricier
My personal opinion differs from Michael on this one. But hey, he’s the expert.
Michael suggests that:
“If people can get full financing for used cars, and with a time limit of just two months to get it, I foresee a big rush. There are a lot of Singaporeans for whom a car is a necessity. So I think there’ll be a tough fight for the current supply of used cars, and maybe a rise in prices.”
I don’t think so.
I think point 1 is the reason there won’t be a rush. Come on: If you can wait for COE prices to drop further, and possibly afford a new car, why not wait rather than buy a second-hand car?
I gather that some Singaporeans may need a car immediately. But there’s some 7,000 cars available (with loan restrictions lifted), and I don’t think they number that many.
Follow us on Facebook, and I’ll update you if used car prices start to rise.
3. Reconsider Selling Your Car
Apparently, selling your car now is like trying to sell air conditioners in Iceland. Supposedly, your car would enter the dealer’s inventory after the restrictions (25th February), and anyone desperate enough to buy it would do so with loan restrictions.
After overhearing complaints (from two people trying to offload their cars), I asked the used car dealer directly. He declined to be named:
“We will still buy your car if your expectation is reasonable. We also need cars to sell, later down the road. But for the next two months, your car will probably not be the car I sell, because it’s not registered (He means it’s still subject to loan restrictions – Ed.)”
Yes, I get that, but will it affect the amount the seller gets?
“The demand for used cars is low recently, and if COE drops it just means new cars will keep being more attractive.”
Hah, 22 words to say “Yes”. I’m sure you can get still get a good price somewhere; just be prepared to look harder if you’re selling.
4. Brace for a Personal Loan
With alternative credit sources gone, car buyers may need personal loans. In other words: Get a personal loan for the down-payment, and then apply for the car loan.
That could be a bit tricky. Car loans have a DSR (Debt Servicing Ratio) of about 30%. That means the loan repayment, plus the repayment of any other loans, can’t exceed 30% of your income.
So if you get a personal loan that’s too big, your DSR will shoot up and you won’t qualify for the car loan.
Should you decide you would like to take up a personal loan, sites like MoneySmart have personal loan comparison tools that allow you to compare loans and apply online directly. But if it’s possible, try to wait a while before buying. Once cars get more affordable, you may not need two loans.
How are you affected by the new car loan restrictions? Comment and let us know!
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