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COEs set to rise as MAS eases car loan restrictions?

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New regulations make vehicle financing easier, but the news is not all good

SINGAPORE — Buying a car in Singapore is about to become easier for people who are less flush with cash. The Monetary Authority of Singapore (MAS) has just announced that it will be relaxing the curbs on car loans that it put into place in 2013.

Those rules capped car loans at 50 to 60 percent of the purchase price, with a repayment period of five years.

They helped to “moderate the demand for cars and COEs”, the MAS said in a statement on May 26th.

From May 27th onwards, for cars with an OMV below $20,000, buyers will be able to borrow up to 70 percent (previously 60 percent) of the car’s purchase price and pay it back over seven years.

For cars with an OMV above $20,000, buyers will be able borrow up to 60 percent (previous 50 percent) for seven years.

The news rules will apply to non-MAS regulated entities which extend hire-purchase loans for motor vehicles.

The Ministry of Law will also require licensed moneylenders to comply with the revised financing restrictions, said the MAS.

SMALLER DOWN PAYMENTS
The new rules should be welcome news for car buyers, who will now have to come up with less cash upfront for their purchases.

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Consider a Toyota Corolla Altis (above), currently priced at $117,888 with COE. Previously, the down payment would have been $47,156, with monthly repayments of $1,337 (assuming interest rates of 2.68%) for five years

Under the new rules, the down payment drops to $35,367, while monthly repayments should fall to $1,167 for seven years.

This example shows the most significant impact of the new rules: lowering the amount of cash required up front by $11,789.

MORE EXPENSIVE COES
Paradoxically, as cars become more affordable, they will also become more expensive. With the hurdle for buying a new car lowered, demand for them should increase.

The stiffer competition for COEs resulting from that will raise prices, although it’s too early to say by how much.

Put another way, by the MAS’ own reckoning the tight rules introduced in 2013 had the effect of bringing COE prices down. Reversing those rules should have the opposite effect of bringing prices up.

Would-be car buyers should find some solace in knowing that pricier cars that they can afford to finance are still better than cheaper cars that are finacially out of reach.


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What’s the full fallout from the new rules going to be? Click here to see how interest rates, vehicle sales and parallel importers will be affected

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