As cars are super expensive in Singapore, it’s normal for car buyers to take up a car loan when purchasing a car. Due to regulations set by the Monetary Authority of Singapore, there are limits to how much a car buyer can borrow.
If the Open Market Value (OMV) of the car is less than $20,000, you can borrow up to 70% of the valuation price. Else, if the OMV is more than $20,000, you can only borrow up to 60% of the valuation price.
The rationale behind the limitations to the maximum loan you can get is simple, really. Singapore’s a small country, so these limitations have been put in place “to restrain escalating COE premiums and consequent inflationary pressures” and control the number of cars on the road to avoid uncontrollable congestion.
But what if you’re someone who has the cash and doesn’t want to take a car loan? Are you able to buy a car without a loan?
Can You Buy a Car without a Loan?
The short answer is yes, you can do that. But there are some caveats to it.
Paying full cash for your car is actually ‘harder’ than you think. There are instances where you might not be able to get rebates or freebies, or worse, have additional charges imposed on your purchase.
These charges are sometimes masked as “administrative fees” and can cost you somewhere in the ballpark of $500 to $1500.
In other scenarios, you might be pushed to take up at least the minimum loan required or you might not be entertained at all. This is a fairly common practice as dealerships and sales executives earn from the interest paid and commissions they’d receive from the banks.
Of course, there are some car companies and sales executives who are willing to help you settle your purchase without loans – like CARRO! We offer you the flexibility to choose how you’d like to pay for your car, penalty-free. So expect no additional fees, no inflated prices and 100% transparency when you buy a CARRO Certified pre-owned car in whichever way you want.
Disadvantages of Full Cash Payments for Cars
We’re no financial gurus here, but it’s important that you have a few months’ worth of savings on hand for emergency use. So if you don’t have a lot of savings or would need to wipe out your account, then paying for your car in full cash is definitely a bad idea.
Saving thousands of dollars is not easy. The journey to building your nest egg takes a lot of time and the process can be quite arduous too. You’d have spent years tweaking your lifestyle and watching what you spend just to get to where you are now. So wiping out your savings just to buy a car without taking a loan is definitely not advisable. It’s just not worth it, even if you get to save more on the purchase of your car!
Also, by buying a car without taking a loan, there will be limitations on the type of car you can buy. Bread and butter models like a secondhand Toyota Altis are definitely attainable. But fancier models like a Mercedes-Benz CLA 180 will be harder to reach, even if it’s pre-owned! Taking a car loan would allow you to spread out your payments, which makes the more luxurious models more accessible.
Benefits of Buying a Car in Full Cash
If you’re planning to sell your car before paying off your loan, the process of settling your outstanding loan is quite troublesome and you’ll be charged an early settlement penalty. While this penalty is usually about 1% of the financed amount, it differs from financier to financier. So, if you paid for your car in full cash initially, you won’t have to worry about settling your outstanding loan and incurring a penalty.
Additionally, when you pay for your car in full cash, you will be avoiding the mountain of interest charges you’ll incur over the course of your loan tenure. For example, if you take a $60,000 car loan on a 7-year plan at 1.98%, you’ll have to fork out almost $9,000 more for the car. That’s $9,000 you could’ve put into your savings or used for other important things in life. So, paying for your car without taking a loan actually saves you more money!
You’ll also be skipping out on the hefty monthly payments as your car has been fully paid off. You’ll only need to focus your monthly finances on parking and petrol costs, which would potentially offer more financial flexibility and lessen the strain on your wallet every month. But that’s not all… paying for your car in full cash actually makes a lot of sense. Especially if you are looking to buy a house!
Why Paying for a Car in Full Cash Makes Sense
And that’s because of the Total Debt Servicing Ratio (TDSR). TDSR is basically a ratio of your monthly income that you can dedicate to paying off loans. Loan repayments are capped at 60% of your income, and taking a car loan can eat up a big chunk of that 60%. As such, this would affect the loan amount you can get for your house. For this reason, many experts recommend that you secure your house loan first before getting a car loan. This ensures that the roof over your head is secured and not affected by the loan for a set of wheels!
Thinking of buying a car without taking a loan and going through the hassle of negotiation? Don’t worry, we’ve got the solution for you!
At CARRO, you can conveniently do cash payments via online bank transfer, full cash, or cheque. You’ll enjoy a fully transparent service with no inflated prices or penalties – that’s why we’re the better place to buy cars! Check out our wide selection of pre-owned cars today.