Everyone knows owning a car is expensive. Just take a quick look around and you’ll see brand new entry-level cars starting at around $100,000 or used cars that will cost you around $8,000 a year. For most of us, this is a large expense and we’ll probably resort to taking on a car loan to pay for the car.
However, do another quick search on car loans and you are bombarded with options. Should you take a loan from the dealer or the bank? Or a financial institution? What are the differences?
Confused? We don’t blame you. Here’s a guide on car loans every car buyer should check out!
How much can you borrow?
The Monetary Authority of Singapore (MAS) has set some rules for motor vehicle loans. Firstly, the maximum loan tenure has been increased from five years to seven in 2016. So this means that, although you’ll have lower monthly payments, you’ll end up paying more interest for your loans.
Secondly, the amount that you can borrow depends on your cars Open Market Value (OMV). It’s basically the real cost of the vehicle before it was imported into Singapore with the prices of freight, delivery and insurance. If you want to find out the OMV of a car, it’s pretty easy. Just head on down to One Motoring to find out the average OMV of any car model.
This OMV value is vital in determining how much you can borrow. If the OMV value of the car that you’ve picked is less than or equal to $20,000, you can borrow up to 70% of the final price of the car and pay the rest as a downpayment.
On the other hand, if the car’s OMV value is more than $20,000, you can only borrow up to 60% of the final price of the car and must cough up the other 40% of the final price as a downpayment.
Basically, this rule of paying a higher downpayment for more expensive cars is to ensure that you’re financially stable enough to buy a more expensive car.
Where can you get a car loan from?
Now that you understand how much you can borrow, the next step is to choose where to get the loan from.
Typically, there are 3 options to choose from:
- Bank loan through a car dealer
- Directly from the bank or an authorised financial institution
- In-house financing
Bank loan through car dealers
When you buy a car from the dealership, they might offer you car loans from the banks. Although you could get a loan from the bank yourself, why are dealerships offering their services to help?
That’s because the dealers get a commission from the bank. They could throw in really amazing freebies like Dyson vacuums cleaners or extended servicing packages to entice you to sign up for a bank loan with them.
Although it’s very convenient to get the loan from the dealership, you could be saving some money by getting a loan elsewhere.
Directly from the bank or an authorised financial institution
By going to the bank directly, you’re skipping out on the middlemen. But that means you’ll have to do your homework to find out which bank has the most attractive interest rates. Luckily, there are plenty of websites that allow you to compare real-time interests rates, so this part would take no longer than a couple of hours.
Right now, this process could be as easy as getting a loan from the dealership. Most banks have digitised their loans approval process. So, instead of having to gather all your important physical documents like we had to do in the past, banks will use MyInfo to quickly upload your information. Approval can take as short as 10 minutes!
Some dealerships, especially second-hand car dealerships, have come up with their own financing schemes. That’s because getting loans for second-hand cars from the bank is slightly trickier. But, buyers do like in-house financing for another reason. Their ability to offer ‘loopholes’.
One potential ‘loophole’ is the balloon scheme which is for you to lower your monthly payments. By doing so, you are reducing your Total Debt Servicing Ratio, so you can take a bigger loan for a house. If you want to learn more about balloon scheme financing and its pros and cons, check this guide out!
Car loans can be tricky to understand. It’s best you get professional advice that is trustworthy and has a good track record. Introducing our sister company, Genie Financial Services! With 20,000 transactions and over $200 million worth of loans underwritten over 3 years, Genie has proven itself to be a popular choice for consumers.