You’ve heard about it: car price in Singapore are among the world’s highest — if not the home for the most expensive cars across the globe — thanks largely due to the government’s efforts to encourage public transportation modes. Whether you are taking a car loan or if you are buying a new car straight from the car dealer, car prices are sure to be high.
But what if you want your first car, or if you still need a private car in Singapore to move around the city state, especially with the COVID-19 pandemic making a lot of people think twice about availing public transport? That’s where extremely low car loan down payment schemes come in, as financial institutions provide buyers the chance to pay for the car in tranches, instead of paying in one whole sum. Find out more on the cheapest car in Singapore.
But in recent years, the zero down payment car loan method has attracted a lot of car buyers as such measures would not require a huge purchase price before a car buyer can take their motor vehicle home. But is availing of this scheme, despite some glaring disadvantages and difficult requirements, even worth it?
How much can you get from car loans?
Before jumping off to any offer that says you do not need to make any car loan down payment, it is good to have a basic understanding of the procedure behind the selling of a car in Singapore. Basically, the Monetary Authority of Singapore (MAS) has placed limits on financing terms or duration and loan amount to ease demand for vehicles — still in line with the bid to limit traffic and encourage public transport.
What this does is set a cap on the loanable amount: for a motor vehicle with an open market value (OMV) of less than or equal to S$20,000, the loan to value (LTV) amount or the part of the payment that finance companies can shoulder for a buyer is at a maximum of 70 percent. For a car priced over S$20,000, the maximum amount to be loaned was set at 60 percent.
These are actually relaxed rules already, as the government used to require customers to pay down payment of either 40 or 50 percent of the car’s OMV – for a maximum loan value of 60 or 50 percent.
So technically, it is impossible to get a zero down payment loan, because if the loan to value is at 60 percent for cars worth over S$20,000, the buyer would be required to pay the remaining 40 percent as down payment.
How long should the car loan tenure be?
Regardless of value or make or loan to value, car loan tenures in Singapore are set at a maximum loan tenure of seven years — another factor that makes zero down payment a far-fetched scheme, as monthly payments would be off the charts.
Regardless if you avail of the zero down payment scheme or not, the loan tenure will still be at a maximum of seven years — which naturally leads to bigger monthly contributions.
Is zero down payment even possible?
But zero down payment schemes exist thanks to finance companies and institutions partnering with car dealers or car houses, where the car houses themselves take a loan from the bank or the firm to shoulder the cost of the car. This usually happens with pre-loved cars, but new offers are also now featuring vehicles fresh off the dealership.
Under this procedure, car buyers would then settle the loan amount separately with the bank — and then let customers ‘own’ the car with zero down payment.
Car subscription and zero down payment
There are some cases where owning a car is treated like subscription to a streaming service, where customers are required to pay a subscription fee monthly as if the buyer was leasing the car. Zero downpayment car loans usually have a fixed term: users can ‘own’ the car for six months, and then shift to another car they would prefer.
Payments are often based on usage also, with mileage being a factor in how much people would pay.
A lot of customers in Singapore are attracted to this scheme due to the extremely high prices of cars in the Southeast Asian country, but there may be several disadvantages to it.
Too good to be true? What’s the catch?
The top of mind concern about acquiring cars through zero downpayment methods is that buyers would have to pay a very huge sum of money compared to the car’s OMV, or compared to regular financing schemes.
That is because a finance company is sure to impose higher interest rates as a result of the buyer not shelling out any money to drive the car home. There are instances wherein the actual paid money to the financing institution almost doubles the car’s open market value.
Possible debt trap?
As a result, there were beliefs that availing of zero downpayment for a car purchase may lead to a debt trap, because of a possibility that loan availers can no longer cope with the higher interest rates — which would then lead to defaulting on debt obligations and possible debt consolidation.
Second, because banking companies are shouldering the expenses for the car, they would make sure that buyers can actually repay the loaned amount — which means more checks and scrutiny over a buyer’s gross monthly income, monthly salary, income tax statement, compared to ordinary car loans.
Rejected applications, legal issues
A lot of applicants have reported being rejected because they do not meet one of the criteria presented by banks, like having a high credit score and having no bad records on loan dues.
Also, there are concerns that such a scheme may actually be illegal if discovered by Singaporean authorities, because as mentioned earlier, the Monetary Authority of Singapore requires that car loans cover at most either 60 or 70 percent of the car’s open market value.
In a 2016 news article from Yahoo Singapore, the website noted that they were able to find dealers on sgcarmart.com that are offering 20 percent downpayment schemes or even lower — like the zero downpayment method or the so-called “zero dollar drive away” deals.
The story noted that these dealers may have been “flouting the law” as the Monetary Authority of Singapore does not allow these loan methods.
Zero down payment vs regular financing schemes
To better understand how much zero downpayment would cost you more, here is a table comparing how much it would cost to own a car through zero downpayment or through regular financing schemes.
For this table, acquiring a 2019 Mazda 3 Sedan with hybrid technology through a zero downpayment scheme in Carro assuming that the buyer drives 1,250 kilometers per month; and through normal financing schemes at sgcarmart.com.
|Mazda 3 Sedan Mild Hybrid (2019)||Carro (zero downpayment)||SGCarmart (7 years to pay)|
|Subscription/ Terms||Minimum of 6 months||7 years|
|Perks/ Inclusions||Insurance, 24/7 Roadside assistance, Maintenance and Service, Customer support, Road tax||Certificate of Entitlement, Additional Registration Fee, Road tax (6 months), Vehicular Emissions Scheme|
|Total price after term||S$12,210 (6 months)||S$111,888|
|Total price after 6 months||S$12,210 (6 months)||S$6,684 (without down) |
S$40,251 (including down)
Customers have to remember though that after the term, owners would have to return the cars to the company, in this case, Carro. But if you take a car loan, the new car is essentially owned by the customer – or the finance company initially before it is transferred to the buyer.
For other zero downpayment methods which result in ownership of the car:
|Car priced S$70,000 on a 7 year term||Zero downpayment||Regular car terms|
|Total amount||S$94,500 (3.5% interest per annum)||S$83,160 (1.88% interest per annum with OCBC|
|Subscription/ Terms||7 years||7 years|
|Price after 6 months||S$6,750||S$4,158 (without down) |
S$29,106 (including down)
Other financing/ car ownership options
Of course, there are other options if you are wary of zero downpayment schemes, and if your application does not get approved. As stated above, you can opt for the other traditional loan applications, or other direct deals and financing packages with a car dealership.
Customers can also directly find a financial institution that will provide options suitable for their current financial standings.
Then, there is always the choice of buying used cars from a previous car owner or second-hand car dealers: while these may go through financing schemes also, there is a wide array of options in Singapore, with the pre-loved car industry growing especially with the COVID-19 pandemic.
Zero downpayment is not really a bad option especially if choices are limited, due to circumstances like financial constraints. But choosing zero downpayment must be thought of intently because high-interest rates would surely have another effect on a person’s finances.
- With zero downpayment that is actually a car subscription scheme, the customer does not immediately get ownership of the car and maybe even more expensive in the long run.
- Zero downpayment schemes would require most banks and finance companies greater scrutiny of personal activities like monthly income, outstanding loan, just to get that loan approval
- Buyers with a good financial standing only get a small reprieve if they opt for zero downpayment offers, because the monthly obligation that will be paying would be way higher from a normal car loan. However, it is handy for people who cannot afford huge downpayments.
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