Car dealers offering buyers to bypass downpayment rule


Car owners are required to make a 30 or 40 per cent downpayment when buying a car. (Photo:Yahoo Newsroom)

Some car dealers may be flouting the law by offering buyers downpayment lower than the levels specified under the newly relaxed vehicle financing rules.

A check by Yahoo Singapore on popular website sgcarmart revealed that there are dealers offering potential buyers minimum downpayment of 20 per cent or less.

Under the Monetary Authority of Singapore rules that took effect in May, a car buyer has to make a minimum downpayment of either 30 or 40 per cent, depending on the Open Market Value (OMV) of the car, compared with 40 or 50 per cent previously. The maximum loan tenure allowed is seven years, compared with five years previously.

A number of dealers are even offering “zero dollar drive away” deals, which means that buyers need not fork out a single cent when they sign on the dotted line.

Despite knowing that their offers could be illegal, some dealers are providing such a payment scheme as there are buyers who are unable to afford the downpayment required under the MAS rules.

On these dealers, Andy Phang, the sales manager of Renaissance Motoring, said, “The mindset of buyers is, as long as there is a feasible way to buy a car within their budget and they are willing to commit, be it the downpayment or monthly installment.”

Phang, who said that his firm is abiding by the rules, added that some dealers also provide “alternative solutions” for customers to fulfill their dreams of owning a car, without elaborating.

Hidden costs in repayment

Another car dealer said that the lower downpayment scheme is typically offered by credit firms, and warned that buyers may end up paying higher interest rates.

Ismail Yusof, the 50-year-old owner of Dr Kereta, said that these credit firms typically charge car buyers an interest of between 3.5 and 4.5 per cent per year, higher than that charged by many banks.

“Therefore, buyers will end up paying more over the loan period. However, those who are desperate for a car will jump and purchase the vehicle because of the lower downpayment,” Ismail said.


Ismail Yusof of Dr Kereta (extreme right). (Photo: Dr Kereta)

When asked if it is against the law for buyers or dealers to be involved in such transactions, both Ismail and Phang said that it is a “grey area”.

Ismail said, “As long as no one is complaining about it, no one can do anything. As far as I know, most dealers are playing within the rules but banks are following the rule strictly,” said Ismail, who added that he is abiding by the MAS rules.

Cautious car buyers

Yahoo Singapore spoke to a car buyer who recently made a downpayment of 20 per cent for his purchase. Speaking on the condition of anonymity, the technician admitted that a dealer recently helped him circumvent the MAS rules when he bought a car.


New car buyers have to consider higher interest payment even if they can secure lower downpayment from credit firms, car dealers said. (Photo: Safhras Khan/Yahoo Newsroom)

Arnold (not his real name), who is in his 30s, said that he needed a car urgently as his previous car’s Certificate of Entitlement (COE) was expiring. Under the rules, he has to make a downpayment of $18,000 to buy his second-hand car, which was retailing at $45,000.

“I was unable to raise it and I was short of cash as I need to pay for insurance and road tax too. However my dealer assured me that he was able to settle it with the financing company for me. The catch is I had to pay a higher monthly repayment which is fine with me,” said Arnold, who refused to reveal more as he was afraid of getting into trouble.

Other potential buyers that Yahoo Singapore interviewed said they are not willing to take the risk.

Douglas Chua, a human resource manager, called such financing schemes “artificial financing”. The 55-year-old said if he were to buy a car, he would make sure that he is not breaking any rules.

“This is a scheme to bypass the ruling and there are unscrupulous dealers out there who will kill buyers (with higher interest rates),” said Chua, who is hoping to buy a new car soon.

Mutalib Omar, 35, agreed with Chua, and said that he would not sign up for the scheme. The principle consultant added that the higher interest rate would ultimately result in lower cost savings.

“But I know of people who took the deal as they are desperate for a vehicle. They are mostly parents or they have elderly parents and need the car to send their kids to school or to take their parents out,” he said.

In response to queries by Yahoo Singapore about the dealers who offer buyers lower downpayment, the Ministry of Trade and Industry said that dealers who extend motor vehicle financing on a hire-purchase basis are subject to the Hire-Purchase (Motor Vehicles) Regulations and the motor vehicle financing restrictions.

“Breaches of the Hire-Purchase (Motor Vehicles) Regulations will be investigated,” said MTI.

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