So you want to buy a car––but what are your financing options?

Photo by andreas160578

So you’ve decided to join the ranks of the 11% of Singaporeans driving a car, but you need to figure out how you’re going to pay for it. Financing your car is no joke in this country: as you already know, Singapore is one of the most expensive places in the world to own a car, and who wants to pay more than they need to for this huge (but sophisticated) hunk of metal?

The ideal scenario is one where you’re wealthy enough to shell out the entire cost of your car in one go: no interest rates, no debt, and the dealer might toss in a few freebies to sweeten the deal. But alas, cars are expensive and so is living in Singapore (💸💸💸), and yet life must go on––preferably with a car in it. The reality is that most people will have to finance their purchases by taking out a car loan.

Here’s what we’ll cover in this post:

• Am I eligible for a car loan?

• Who should I go to for one?

• What kind of loans can I get?

• How much can I borrow?

• How much am I paying for a car loan?

• How long do I have to pay it off?

Sorry, your dog isn't eligible for a car loan. Photo: Rusty Clark by Maia.

Am I eligible for a car loan?

For the most part, this will depend on your car dealer or bank’s assessment. But if you are over 21 years old, a Singaporean citizen or permanent resident, in stable employment (tough luck, freelancers), and earn more than $20,000 per year, you’ve already ticked most of the boxes. Ideally, you’ll also have good credit status; those with poor credit scores may face higher interest rates, as you’re viewed as a greater risk for the lender.

What if you’re on a work permit but want to buy a car? Well, your permit needs to be valid for long enough that you can pay off your loan within that time frame––and the lender is also convinced that you can do so.

Who should I go to for a car loan?

Most people will go to their car dealer, or a bank.

Your dealer will typically offer one of the following options:

In-house financing package

Some car dealers offer their own car loans through established partnerships with financial institutions, and these often look much more attractive than conventional bank loans, even when the interest rates are higher. For example, they might suggest low monthly repayments––but this means it’ll take longer to pay it off, and you’ll be paying more in interest to boot.

Or, they might do something known as ‘overtrading,’ where they artificially inflate the purchase price so that your down payment is lower. (So you won’t feel so heart pain lah) But even though your down payment is lower, the overall loan amount is higher, which means more paid in interest over the duration of the loan. Paying it off early may not work, either: dealers often include an ‘early settlement/repayment fee’ and ‘unpaid interest fee’ if you decide to pay it all off early, as this will recoup the interest you’d otherwise have paid them.

Given all this, why on earth would anyone go with in-house financing? In short, it’s the easy option. You don’t have to do much research, if any. You can buy the car and complete the financing processes in one go, and negotiate sales price or other add-ons. You don’t have to go to a bank and wrangle with paperwork. For some people, convenience can easily win out.

(Note: ST Auto does not have its own in-house financing package.)

Bank loans through your car dealer

Car dealers also offer bank loans through familiar institutions like DBS, UOB, OCBC, and more. This can be an attractive option as you don’t have to deal with much paperwork, and they’ll take care of all the heavy lifting for you. Sometimes they’ll even throw in cool freebies, like upgraded seats in your new car. The flip side, of course, is that your dealer receives a commission for signing you up.

(Full disclosure: At ST Auto, we help you sign up with banks we work in partnership with. Yes, we do receive a commission, but we do try to make the process as seamless as possible so you don’t have to spend lots of time on paperwork and talking to people at the bank––we’ll do all of that for you! However, we’ll never force you into a choice you don’t want to make.)

Alternatively, you can take a direct loan from a bank or financial institution. These loans typically have lower interest rates than the financing options stated above; you just need to do your own legwork. Depending on the type of loan, failure to pay may mean either your car (secure loan) or something else being seized and reclaimed (unsecured/personal loan).

Banks offering car loans include DBS, OCBC, UOB, Maybank, Standard Chartered, and Hong Leong Finance. Bear in mind that their interest rates are subject to change, and not all financial institutions will publish these publicly––you might only find out by asking them directly.

What kind of car loans can I get?

There are quite a few different kinds out there, but the following are the most common:

New car loan: In this case, you can borrow up to 60–70% of the Open Market Value (OMV) of the car you’re looking to buy. Interest rates start at around 2.48% per annum.

Used car loan: Here, interest rates are a little higher, starting at 2.78% per annum. Used cars don’t come with a warranty, and their resale value usually varies. Even though you can valuate your car, the reality is that its actual value is hard to pin down, and rates are higher to account for that.

Green car loan: This is a new loan type to the scene, and is aimed at encouraging electric vehicle (EV) adoption among Singaporeans. At present, Hong Leong Finance is offering interest rates of 1.5% (how incredibly low is that?) while DBS is offering rates of 1.68%.

Direct hire purchase: The car dealer secures a bank loan for the customer, in essence leasing the car to you––legally speaking, it ain’t your car until you’ve forked out all the money.

COE loan: Everyone knows about the wildly expensive COE––the average Singaporean definitely needs help paying that off. Interest rates range from 2.98% to 3.5% per year, and the loan lasts about 10 years.

COE renewal loan: The same as above, except it’s for those who want to extend the validity of their original COE. These are pretty uncommon, and only a few banks offer them.

How much $$ can I borrow?

This depends on the Open Market Value (OMV) of the car. As we’ve written about here, this is the base cost of the car––what it cost before arriving, plus freight costs, insurance, and everything else the importer had to front. If your OMV is $20,000 or less, you can borrow a maximum of 70% of the purchase (or valuation) price. If it’s more than that, the maximum drops to 60%.

However, you might not be able to get this much in practice. Factors like monthly income, financial commitments, and credit score play a part; bear in mind that you are also legally not allowed to apply more than 60% of your income towards loan repayment. What this means is that you should set aside enough money for a solid down payment on your car, particularly when you start adding in the COE, ARF, GST, etc.

How long do I have to pay it back?

You have a maximum of 7 years; this applies to everyone applying for financing from a financial institution to buy a new or used motor vehicle. This doesn’t apply to motorcycles or commercial vehicles. People who are physically disabled (or their caregivers) are also exempt from the maximum duration––i.e. they’re allowed to take longer than 7 years, which seems perfectly reasonable to us.

Of course, you don’t have to pay it back over 7 years––the longer the tenure, the more interest you’re paying. Just make sure you pick a time frame you can handle.

Want to buy a car but also need help with financing? We’d love to help you out. Head on over to ST Auto for a chat and test drive with our friendly sales staff! Call +65 6464 9098 or email us at enquiry@stauto.com.sg