Getting your first car can be exciting. You don’t have to depend on anyone else for a ride, and you won’t have to get the MRT to work anymore.
Yay! No more squeezing!
But there’s a problem.
If you’re like most people, you probably don’t have the entire sum saved up. It’s at least $60,000 ready cash.
That means you have to consider a car loan.
These financial packages are streamlined and convenient solutions, accessible to most people. But before you get one, read the article below. You’ll find out the advantages of car loans, the maximum amount you can borrow, the paperwork you need, and much more. We’ll also discuss the pros and cons of purchasing a used vs new car with your car loan, so keep reading below.
What Is A Car Loan?
A car loan is a sum of money you borrow from a financial provider to purchase a car. You’ll have to reimburse the cash over an agreed interval, along with all the interest and charges.
Usually, this makes the entire loan a lot more affordable with monthly installments.
How Much Can I Borrow For My Car Loan?
The maximum car loan amount in Singapore depends on your vehicle’s OMV (Open Market Valuation).
- OMV is equal to or below $20,000: You can borrow a maximum of 70% of the car’s price
- OMV is above $20,000: You can borrow a maximum of 60% of the car’s price
Here’s the catch:
Some banks, like OCBC, promise you can borrow up to 70% of the purchase price or their car valuation – whichever sum is lower.
That said, the maximum sum you can borrow for your car also depends on:
- Your monthly income
- Credit score
- Other loans
The good news is that most financial providers will approve your car loan because you’re placing that vehicle as collateral. Basically, it’s a very safe type of loan for them.
Pro tip: Take some time before applying for your car loan to save sufficient funds for your down payment. Use this time to improve your credit rating too.
What Is The Maximum Loan Period?
For some financial institutions, the maximum period for car loans is seven years.
The maximum tenure for used car loans depends on that vehicle’s registration date at some banks. So, if your dream car was registered seven years ago in 2014, its maximum remaining loan tenure is three years.
Three Benefits Of Getting A Car Loan
Car loans come with their set of:
|- Low-interest rates|
- High approval rates even with less-than-perfect credit scores
- Quick and convenient
|- You risk losing the car if you can’t reimburse the loan|
- You need to make an upfront payment
The advantages and drawbacks above are determined by one key factor: car loans are secured against your vehicle. That’s why they’re less risky for lenders, who can lower their interest packages and approve your application in minutes.
Hint: Some financial institutions even allow you to apply through digibank or SingPass.
Should I Buy A Brand New Car Or A Used Car?
New cars have several advantages compared to used cars. The fact that someone hasn’t used them before means they’re in better shape to withstand more years of use. Besides, the chances of breaking down anytime soon are slim to none.
Next, consider the charges.
Everything is cheaper with a new car, from road tax to bank interest rates, because these new models are less likely to become damaged.
Of course, you can also consider the comfort and thrill of getting a new vehicle versus your budget.
Then there’s the car loan. If you don’t have the entire sum saved for purchasing your dream car, it’s worth looking at the interest rates and costs.
Let’s say you want an Audi A1 Sportback 1.0 TFSI S Tronic S Line (A), priced at $148,330.
You can take a loan of $88,998, at an interest of 2.78%, 7 years loan tenure.
Here’s what that means:
- 2.78% interest per year equals about $2474/ year
- Multiply that with seven years, and you’ll pay $17.319 in interest alone
- Divide the total sum (interest plus original loan) of $106,317 to 84 (the number of months in your 7-year tenure) to get a $1265.67 monthly installment
What about buying a used car?
A quick online search reveals that the same type of car costs between about $50,000 to $120,000 in Singapore. Let’s get the median value of $70,000 and say you’re getting approved for the maximum of 60% of that loan.
So, a used Audi has you paying monthly installments of $670, whereas you’ll have to fork out double that amount for a new car. Plus, you’ll be debt-free one year earlier.
The risk is that you never know when a used car can break down and, depending on the model if you can repair it.
How Can I Get The Lowest Interest Rates For My Car Loan?
You can get the lowest interest rates for your loan if:
- You’re applying at your bank directly
- Your credit rating is good
- You’re earning a medium-high level paycheck
Here’s the catch:
If you want a particular car model, like that Audi we talked about in our previous example, you’ll stick to it whether it’s new or used. That means you’ll likely apply for half the amount with a used car loan.
So even if the corresponding interest is higher, the monthly instalment rates will be lower.
What Are The Documents Needed To Apply For A Car Loan?
The documents you need are:
- Vehicle Sales Agreement
- Employment details
- Preexisting loan details
- Income proof (minimum $2,000/ month for PRs and citizens; minimum $4,000/ month for foreigners)
- Proof that you’re at least 21 years old
Here’s An Example Of An Individual Who Took Out A Car Loan To Purchase A Brand New Car
Adrian is a 30-year old computer programmer looking to buy his first car. He went to a dealership and settled on a Peugeot 2008 1.2 PureTech EAT8 Allure Premium (A), priced at $116,888.
Adrian followed the steps below:
- He applied online with MyInfo and got his loan approved in minutes
- He made a trip to the financial institution to confirm his loan details and personal particulars.
- He agreed and signed the contract.
- Next, he had the loan amount transferred to his bank and informed his car dealer.
- He collected the car
- He started paying his loan as follows:
- 2.48% interest rate/ year
- 7-year tenure
- At the end of the tenure: $12,175 total interest paid
- $980/month installment
Should I Refinance My Car Loan?
What if I already took out a car loan?
You can refinance your car loan if:
- You have an excellent credit score
- You’re paying low interest
- Your car costs more now than the remaining debt
- You want to renegotiate your terms
Things get trickier if you have an older car or still owe a hefty sum. In this case, the new lender can impose even higher interest rates that simply aren’t worth it.
Get A Low Interest Car Loan From Lending Bee
If you’re looking for a loan, consider Lending Bee. We are one of the best financial institutions around and we are the first few to have received the FinTech Licence from the Singapore FinTech Association (SFA).
At Lending Bee, we offer reasonable car loans that might be able to help you with your finances.
We offer a better price than other financial institutions. Read from our satisfied customers here!