Buying your dream car in Singapore isn’t just about picking the right model—it’s about finding the right financing. With car loan approvals on the rise in 2024, including a surge in electric vehicle (EV) financing, more buyers are exploring their options. But not all car loans are the same, and choosing the wrong one could cost you thousands.
The two main options are bank car loans and in-house financing. Banks offer lower interest rates but stricter approval criteria. In-house car loans, provided by dealerships, have higher approval rates and faster processing but often come with steeper costs. Understanding these differences is crucial to avoid financial pitfalls.
This guide breaks down both financing options, covering pros and cons, eligibility, loan terms, and expert tips. By the end, you’ll know exactly which loan type suits your needs best.
What is an In-House Car Loan?
An in-house car loan is a financing option offered directly by car dealerships rather than traditional banks or financial institutions. Unlike bank car loans, which follow MAS regulations on loan tenure and loan-to-value limits, in-house car loans are offered by dealerships and may not adhere to these restrictions. However, they are still subject to general consumer protection laws in Singapore.
While bank loans typically follow a standardized structure, in-house financing may offer higher loan-to-value (LTV) ratios and quicker approval processes, making it a viable option for buyers looking for convenience and flexibility.
This flexibility makes in-house financing an attractive option for certain buyers, especially those with unique financial situations.
How Does an In-House Car Loan Work?
An in-house car loan works similarly to a bank loan but with different terms and conditions:
- The loan is secured against the car, meaning the dealership retains ownership until the loan is fully repaid.
- Interest rates can start as low as 1.68% p.a. but often exceed bank rates, depending on the dealership. Rates vary based on factors like whether you’re buying a new or used car.
- Loan tenure may extend up to 10 years, which is longer than the MAS-regulated 7-year maximum for bank loans.
- LTV can reach up to 90%, requiring a lower upfront payment compared to banks, which typically finance up to 70% depending on the car’s Open Market Value (OMV).
- Since in-house loans do not count towards the Total Debt Servicing Ratio (TDSR), they may not impact a buyer’s ability to take on other loans, such as home financing.
Key Differences Between In-House and Bank Car Loans
| Feature | Bank Car Loan | Dealer In-House Loan |
| Regulation | Follows MAS guidelines on LTV ratio and loan tenure | May not follow MAS guidelines on loan-to-value limits and loan tenure |
| TDSR Impact | Counts towards TDSR | Does not count towards TDSR |
| Credit Check | Requires good credit history | More lenient on credit scores |
| Interest Rates | Lower (from 2.28% p.a.) | Higher (2.78% – 3.5% p.a.), some as low as 1.68% with conditions |
| Loan-to-Value (LTV) | Up to 70% | Up to 90% |
| Approval Speed | Takes longer (3-5 business days) | Faster (as quick as 24 hours) |
| Loan Tenure | Up to 7 years | Up to 10 years |
| Additional Fees | May include processing fees, early repayment charges | May include admin fees (SGD 500 – 1,200), potential hidden costs |
Pros and Cons of In-House Car Loans
In-house car loans offer convenience and flexibility, making them a popular choice for buyers who prioritize fast approval and higher financing options. However, they come with trade-offs, including higher interest rates and potential hidden costs. Here’s a closer look at the advantages and disadvantages.
| 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 |
Advantages of In-House Financing
1. Faster Approval Process
Unlike bank loans, which can take 3 to 5 business days to process, in-house car loans can be approved within 24 to 48 hours. Dealerships handle the financing directly, reducing paperwork and allowing buyers to drive away with their new car much faster.
2. Higher Loan-to-Value (LTV) Ratio
In-house financing often covers up to 90% of the car’s price, whereas bank loans are capped at 70% depending on the Open Market Value (OMV). This means buyers need a smaller down payment, making car ownership more accessible.
3. More Lenient Credit Checks
Bank loans require a good credit history to qualify for lower interest rates, but in-house lenders tend to be more flexible. This makes in-house financing a viable option for individuals with low credit scores, freelancers, or those with irregular income who may struggle to get bank approval.
4. Convenience & Simplicity
Since the loan is arranged directly by the dealership, buyers don’t need to coordinate with banks or third-party lenders. This reduces paperwork and streamlines the process, making it easier for those who prefer a one-stop solution.
5. Flexible Repayment Options
Some dealers offer balloon payment schemes, where monthly repayments are lower, and a final lump-sum payment is made at the end of the loan tenure. This can be useful for buyers who want to keep their initial costs down.
Disadvantages of In-House Financing
1. Higher Interest Rates
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.
2. Additional Fees
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.
3. Limited to Dealer’s Inventory
With a bank loan, buyers can purchase a car from any dealership. However, in-house loans are tied to a specific dealer, meaning buyers may have fewer options when selecting their vehicle.
Eligibility and Requirements
Dealerships and loaners 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 financial institutions 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.
How to Apply for an In-House Car Loan in Singapore
Applying for an in-house car loan is a straightforward process with faster approval times compared to traditional bank loans. While each dealership may have slightly different requirements, the general process remains consistent across most financing providers. Below is a step-by-step guide to securing an in-house car loan.
Step-by-Step Application Process
1. Choose a Dealership Offering In-House Financing
Not all dealerships provide in-house loans, so start by shortlisting dealers that offer this option. Compare loan terms, interest rates, and repayment plans before proceeding.
2. Check Loan Eligibility
Dealerships have different eligibility criteria, but most require applicants to be:
- Singaporean, Permanent Resident (PR), or a foreigner above 21 years old.
- 18-21 years old applicants require a guarantor.
3. Get a Loan Quote
Request a financing breakdown, including:
- Loan tenure (up to 10 years for in-house financing).
- Interest rates (ranging from 1.68% to 3.5% p.a.).
- Loan-to-value (LTV) (up to 90% of the car price).
- Administrative fees (can range from SGD 500 to SGD 1,200).
- Any potential hidden charges.
4. Submit Required Documents
The dealership will request several documents to verify eligibility and finalize the loan agreement. Most dealerships require the following:
- Copy of NRIC (front & back) for Singaporeans/PRs.
- Passport & Work Permit for foreigners.
- Latest 2 years’ Notice of Assessment (for self-employed individuals) OR.
- Latest 12 months CPF contribution statement (for salaried employees) OR.
- Latest 3 months’ computerized payslips.
- Signed Loan Application Form
- Sales & Purchase Agreement of the vehicle
- Enquire PARF/COE Rebate for registered vehicles
Providing complete documents reduces approval delays and ensures a smoother application process.
5. Loan Approval & Agreement Signing
Once the dealership reviews your documents, they will issue an approval, typically within 24-48 hours. Carefully read the loan agreement, checking for hidden costs, penalties, and repayment terms before signing.
6. Receive Loan Disbursement & Car Handover
After signing, the dealership finalizes financing and transfers vehicle ownership to you. You’ll receive the car upon completion of all necessary payments and documentation.
How Long Does Approval Take?
One of the biggest benefits of in-house financing is the fast approval time. Unlike bank loans, which may take 3-5 business days, in-house loans are typically approved within 24-48 hours, making them an attractive option for buyers who need quick financing.
Key Considerations Before Choosing an In-House Car Loan
Before committing to an in-house car loan, it’s essential to weigh the long-term costs and implications. While these loans offer speed and flexibility, they may come with trade-offs that affect your financial stability. Here are the key factors to consider:
1. Total Cost Over Loan Tenure
In-house car loan interest rates in Singapore can vary significantly depending on the dealership and specific loan terms. Some may offer interest rates ranging from 1.88% to 6.68% p.a. while others offer interest rates from 2.78% to 3.5% p.a. It’s essential to consult directly with the dealership or financing provider to obtain the most accurate and personalized interest rate based on your specific circumstances.
2. Flexibility vs. Security
- Bank loans are regulated by MAS, ensuring structured terms, fixed repayment schedules, and consumer protections.
- In-house loans offer more flexibility in loan-to-value (LTV), tenure, and credit requirements, but they are not MAS-regulated, meaning terms can vary widely.
If you prefer regulated security, a bank loan is the safer choice. If you need a customized financing plan, in-house loans might be a better fit.
3. Hidden Fees & Charges
Some dealerships may include administrative fees (SGD 500 – 1,200), early repayment penalties, or even markup interest rates. Always request a full breakdown of all costs and read the fine print before signing.
4. Your Credit Profile
- If you have a good credit score, you’ll qualify for lower bank interest rates, making a bank loan more cost-effective.
- If you lack credit history or have a poor credit score, in-house financing may be the only viable option, but expect to pay more in interest.
5. TDSR Impact
- Bank car loans count towards the Total Debt Servicing Ratio (TDSR), which may affect mortgage approval.
- In-house loans may not be included in TDSR calculations, making them a better short-term option for buyers planning to apply for a home loan soon.
Final Thought
In-house car loans are not necessarily bad, but they require careful evaluation. Always compare options, check for hidden costs, and ensure that the loan aligns with your long-term financial goals.
FAQs
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 loaner 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.
3. Can I switch from an in-house loan to a bank loan later?
Yes, but this process is known as car loan refinancing. If you find a bank loan with lower interest rates, you can refinance your in-house loan to reduce your total repayment amount. However, be aware that some dealerships charge early repayment penalties, which can offset potential savings. Always check the loan agreement for refinancing terms before committing.
4. Are in-house car loans safe?
In-house loans are generally safe, but they lack regulation by the Monetary Authority of Singapore (MAS). This means loan terms, interest rates, and additional fees vary by dealer. Always review the loan agreement carefully, check for hidden fees, and compare multiple lenders before choosing an in-house loan.
5. Is an in-house car loan a good option for borrowers with bad credit?
Yes, in-house financing is more lenient on credit checks compared to banks. If you have a low credit score, irregular income, or past loan rejections, an in-house loan may be your best option. However, this comes at a cost—higher interest rates and possible administrative fees. Always assess the total repayment amount before proceeding.
Conclusion
Choosing between an in-house car loan and a bank loan depends on your financial needs. In-house financing offers fast approval and flexible eligibility but comes with higher interest rates and fees. Bank loans provide lower costs and structured repayment plans but require stricter credit checks and longer processing times. Always compare total repayment amounts, hidden fees, and loan terms before deciding.
Key Takeaways:
- In-house car financing offers faster approvals and higher loan-to-value ratios (up to 90%), but interest rates can vary significantly between dealers (2.78% – 6.68% p.a.) and may have potential hidden fees.
- Unlike bank loans, in-house loans may not count towards the Total Debt Servicing Ratio (TDSR), making them a viable option for buyers planning to take on a mortgage.
- Administrative fees range from S$500 – S$1,200, and early repayment penalties are common, so always check the loan agreement for total borrowing costs before committing.
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