Cars are expensive, especially in Singapore. Factoring in the COE and other car costs, you’ll likely end up buying a car with almost twice as much as its open market value. But, of course, that doesn’t stop people from trying their own cars.
Unless you’re quite loaded or have been saving up a lot before buying a car, your best bet before getting on is likely through a car loan Singapore. Everyone knows that–especially your car dealer, who will readily sell you the dealership’s car financing plans. The question is, should you go for it, or should you go for car financing provided by banks?
Which Is Better?
When choosing between bank loans and in-house car loans, it will ultimately depend on your situation. Getting an in-house car loan with the car dealer can be more convenient and might leverage price negotiations, but a car loan from a bank often has lower interest rates.
Bank car loans might generally seem like the clear winner; note that car dealers will differ in their loan plans, and you can say the same for banks.
So before you jump willy-nilly into car ownership, it’s better to learn all the ins and outs between your two car financing options.
Bank Loans vs In-House Car Loan
1. Bank Car Loan
|Pros of a bank car loan||Cons of a bank car loan|
|Lower interest rates||There may be a fee when repaying the loan early|
|Long loan terms (1 – 7 years)||Rates will differ depending on the car loan tenure|
|Competition between different lenders can give you the option to choose those with more competitive rates||You need good credit to be eligible|
|Car loans are available for whether you’re going for a new or used car.|
The biggest selling point of going to a bank for car loans is their lower interest rates. For your choice of vehicle, you have a multitude of options, making financial institutions adjust their rates into more competitive numbers. As a result, both the most expensive and cheapest car loans remain low for a car loan interest rate.
Bank loans will also diversify your choice of vehicle because, whether you’re in the market for a new or used car, there’s a financing option for you in most banks.
Bank car loans tend to be particular about your credentials and will likely look at many factors that contribute to your finances. This will include but isn’t limited to your monthly income, credit score, financial commitments and whether or not you have an outstanding loan, in addition to your total debt servicing ratio.
You may also encounter an early settlement fee with a bank loan, and a loan application is something that you have to handle yourself.
2. In-House Car Loan
|Pros of an in-house car loan||Cons of an in-house car loan|
|Option to use as leverage for negotiating lower prices||Early settlement fees are common with car dealers|
|Loan tenure can be as long as 7 years||Lower monthly repayments will get you to pay more in total|
|The convenience of getting both car and loan at the same place, while the car dealer handles all the paperwork||May charge a one-time ‘admin fee’ as a means to generate additional revenue|
|Balloon payment option available for lower monthly repayments||Financing options and/or lower interest rates may only be available to newer models|
|Commission for the car salesman may push rates up|
In-house car loans tend to be more convenient because you only have to go to one place for purchasing, financing, and the inevitable car insurance. This means you can jump straight into vehicle ownership and let your dealer handle the entire process.
Getting a car loan in-house also gives you the chance to make balloon payments, which leads to lower monthly repayments because it excludes the PARF in the loan. This is good for someone who has a limited budget to allot in a month.
In-house loans generally have higher interest rates than most banks, and you might be paying much more than the car’s purchase price in the long run.
Aside from the higher interest rates, in-house loans may end up getting more money out of you because of the balloon payment. Lower monthly repayments can be good, but you would still need to pay the PARF at the end of the loan term.
If you’re in the market for pre-owned vehicles, you might likely have to go elsewhere for financing as in-house loans mostly do not cover used cars and only cover new models.
Factors to Consider When Choosing Loans Between Car Dealerships and Financial Institutions
1. Repayments and Total Amount
When choosing a financing option, a big consideration is whether you want to pay less overall or less for your monthly repayments.
If you aim for a lower monthly repayment, the best option is getting a car loan in-house. Car loans from banks will have you paying larger amounts monthly but will ultimately be cheaper in the long run.
It’s also important to consider that whichever financing option you choose, lower repayments will make for longer tenures, meaning you will end up paying more at the end of the term.
2. Convenience and Options
Not worrying about a ton of paperwork is a big plus, but having many options to choose from to get an ideal loan for your purchase is also good.
You may have to choose one or the other, so keep in mind what you value more before making a choice.
3. Additional Fees
Aside from the repayments and the interest rate, you also need to keep in mind other fees that may come up during application:
- Processing/Administration Fee. Usually at least S$200 but is typically waived for a loan amount above S$20,000.
- Early Settlement Fee. A fee for when you pay the remaining loan earlier than the loan tenure. It is typically valued at AT LEAST 1% of the outstanding loan amount.
- Unpaid Interest Fee. Usually charged on top of early repayment charges and is usually valued at 20% of your unpaid interest.
- Commission Fees. Working with dealers to get a bank loan might accrue some fees on your end for the dealer serving as a middle man.
Be mindful of what a financing option would require. For example, bank financing tends to be more strict in their requirements, while dealers are generally less so. However, the requirements will still usually depend on the lender.
Eligibility and Requirements
Dealerships and lenders will usually have their own set of requirements and eligibility. Still, you will generally meet the same baseline eligibility criteria to qualify for a bank car loan, which is as follows:
- At least 21 years old
- The borrower must be a Singapore citizen or Permanent Resident.
- Foreigners may be provided financing if they have a valid work permit with a minimum 1-year validity.
- Must have a good credit score
- Most lenders will require an annual income of $20,000 or more to be eligible for a car loan. A high enough monthly income helps ensure that their total debt servicing ratio is within approvable levels.
1. What makes cars so expensive in Singapore?
Singapore tends to make cars more expensive than their actual purchase price. So before you consider buying and getting a loan, it’s better to get a read on the existing factors that contribute to what you’re paying for and the subsequent loan amount.
OMV (Open Market Value)
OMV is the actual valuation price of the car, excluding all the extra taxes and duties.
COE (Certificate of Entitlement)
The COE is a legal document that is largely to blame for the exorbitant car prices in Singapore. It lets you drive the car around for 5 to 10 years and costs around S$40,000.
ARF (Additional Registration Fee)
An additional tax will usually cost at least 100% of the OMV.
PARF (Preferential Additional Registration Fee)
The PARF rebate calculated based on the car’s age when you deregister it before the COE expires at the 10-year mark. Whether the vehicle was registered locally or overseas, the age of the vehicle depends on its date of registration. The PARF is calculated when it comes to balloon scheme payments.
Excised Duty and GST (Goods & Services Tax)
Both Excised Duty and GST are extra taxes based on the car’s OMV. Excised Duty is 20% of your OMV, while GST is at 7%.
2. Can I use a personal loan to finance a car?
A personal loan is an option for financing a car and can be comparatively easier to apply for depending on the loan amount you want to get. Personal loan interest rates may fluctuate depending on your lender but will be slightly below or similar to dealership loans.
It is important to note that the maximum amount you can get for a personal loan is up to 12 times your monthly earnings, which may limit your purchasing power. Therefore, a personal loan is ideal for supplementing the remaining amount not covered by your car loan.
The best course of action will be to avoid getting charmed by the car salesman into picking a dealership loan right away and focus on exploring the many available options.
Bank loans are generally your safest bet, as with the lower interest, you will end up paying less than you would with an in-house loan.
An in-house loan is an ideal option if you have a limited budget for repayments per month, prefer the convenience of the one-stop-shop when getting a car.
You also have the option of going for a personal loan when dealership interest is too high or when you need to supplement the money you got from a different loan.
The variety of personal options may become overwhelming, but we at Instant Loan can help. We are a loan comparison service dedicated to finding the best solution specific to your financial situation from a curated list tailored to the top-rated moneylenders in Singapore.