Due to the high car prices, many Singaporeans won’t be able to pay fully for their car with upfront cash from their savings. More often than not, they’ll need to take a car loan to cover the remaining cost of the car upon making the requisite hefty cash upfront downpayment.
But getting a car loan, or in fact, any loan is not as straightforward as it seems. There are a lot of things for you to worry about and your existing loans (like car loans, personal loans) affects your ability to take on other loans (like housing loans, in particular).
Why? Because of the Total Debt Servicing Ratio (TDSR) framework.
Total Debt Servicing Ratio (TDSR)
To prevent Singaporeans from being bogged down by debt, the Monetary Authority of Singapore (MAS) introduced the TDSR framework in 2013. Under the TDSR framework, individuals will not be allowed to commit more than 60% of their gross monthly income in repaying loans.
Here’s an example:
Alex wants to buy a car and needs to take a car loan. He has a monthly income of $5,000, which means that his TDSR threshold is $3,000. Currently, his monthly debt repayments include a house ($2,000) and credit card ($500). This means that Alex’s monthly repayments for his car loan cannot exceed $500.
Therefore, he will only be granted a loan of $36,000 at 2.28% interest and loan tenure of 7 years.
This example shows us how an existing loan will affect your future loans. Which is essentially what TDSR is for, to ensure that you borrow, and banks lend, responsibly.
Buying a House AND a Car?
If you’re planning to buy a house, the importance of your home loan cannot be understated. You’ll need your desired home loan so that you won’t be forced to pay a higher downpayment or pass up the house of your dreams!
But does this mean that you shouldn’t own a car and buy a house at the same time because of how pricey these two investments are?
Of course not! Obviously, it’s possible to own both of these at the same time.
But if your funds are limited or you’ve just started working, and need to choose one over the other, then buying a house is a wiser option, since its value is likely to appreciate in the long run, while a car is sure to depreciate.
You’ll need to maximise your home loan as much as possible to get your dream home and you can do that by lowering your monthly debt obligations.
Lower Monthly Debt Repayments
The obvious route to take is for you to not own a car. Or sell your car if you already own one. You can then free up your cash to pay off existing debt and improve your TDSR. Which allows you to get the maximum home loan for your new house.
But for some of us, it’s not feasible to sell off our beloved cars because we rely on it every day. You might need a car for work or to ferry your young children and elderly parents around – whatever it is, your life is heavily dependent on a car and you need one to survive.
If that’s the case, how can you enjoy the freedom of owning a car, without affecting your TDSR?
Drive Worry-Free with a CARRO Leap Car Subscription
When you take up a car subscription like CARRO Leap, the car doesn’t belong to you. You’re paying for the right to use the car every month, similar to other subscription services like Netflix or Spotify!
Starting from $1,399/month, the subscription fee conveniently covers almost everything a car owner would need. You’ll also potentially be able to save up to $800/year with CARRO’s exclusive pay-as-you-drive insurance and maintenance, where you’ll be charged based on how much you drive. So, if you drive less, you’ll pay less!
Plus, unlike traditional car ownership, there’s no need for a hefty downpayment! So you won’t need to take out a car loan to pay for the car or fork out your hard-earned cash for the high downpayment, which gives you more flexibility with your finances, allowing you to use the money for more important things in life.
In fact, because there’s no loan requirement, your TDSR won’t be affected by a car subscription. Your monthly financial commitments and obligations will effectively be lowered, allowing you to maximize your TDSR threshold while enjoying the freedom and convenience of owning a car!
Learn more about CARRO Leap here.