I went to a showroom yesterday, to see how budget 2013 was impacting our car market. Let’s just say the aura of fear was so intense, I sprouted 17 white hairs just standing at the entrance. If this keeps up, our car dealers won’t be thinking “customer service” so much as “Which convenience store can I knock over for lunch money?” We’d better do something about that. So here’s some ways you might still be able to get a car:
What’s Changed About the Car Market?
Budget 2013 restricts car loans like a Singaporean censor restricts art films. We mentioned it in the budget article, but here’s a quick summary:
- Car loans are now restricted to 60% financing, if the open market value (OMV) of the car is $20,000 or under
- Restricted to 50% financing, if the OMV is above $20,000
- Maximum loan tenure capped at five years
Whether or not it helps as intended (it’s meant to lower COE prices), it’s of no use to people who need a car right now. So if you’re one of them, here are some alternative loans to consider. Move fast, because some of these are loopholes that may be plugged soon.
1. Approach Financial Institutions Other Than Banks
Some financial institutions aren’t under the same restrictions as banks…yet.
These are usually private finance or credit companies (The sort you can’t usually approach without being a company). Less frequently, you might find “in-house” loans at car dealers.
Only one car dealer would discuss it with me. Gwee, who started working in this industry last month (bad timing, bro) says:
“Some dealers are advertising things like ‘No loan restrictions’, to attract customers. These loans are actually provided by finance companies that worked something out with sellers; they are not banks, so they are not subject to the same regulations.
I can’t really give you an accurate lowdown on the interest rates, they’re quite variable. But it does cost a bit more than bank loans.”
Note that the government considers these loopholes. If you’re considering them, move fast. This option won’t be around for long. As an aside, Gwee suggests you check loan options at different dealerships, before signing anything.
“Another seller may be working with another credit company, the terms and conditions may be more favourable to you. So look around first.”
2. Use a Personal Loan
You can take a car loan from the bank, and then a personal loan for the down payment.
This one’s tricky, since car loans are capped at 30% DSR (Debt Servicing Ratio). In other words, the total percentage of your overheads, including existing loans, can’t exceed 30% of your income. So if the personal loan’s too large, you won’t be able to secure the car loan.
This is my way of saying: Explain what you’re trying to do to the banker. Don’t apply for a personal loan first, then find out you can’t get the car loan. Or vice versa. Let the bank work out whether your total income is enough for the double whammy of both loans, before you apply.
Finally, be aware that your DSR is also checked for home loans. So if you intend to buy a house, don’t buy a car just before that. The car loan might affect your DSR, and lower the amount you can borrow for your house.
If you need more help with Personal Loans you can visit sites like SmartLoans.sg which will have a personal loan comparison tool in the next few weeks.
3. Licensed Moneylenders
This one’s a partial solution. Licensed moneylenders can help with a part of the down payment, and only if you have high income.
Assuming you earn at least $30,000 per annum, licensed moneylenders can loan you up to four times your monthly income. Their effective interest rate (EIR) is high: Capped at 13% for secured loans, and up to 20% for unsecured loans.
The EIR is used to figure the overall sum you’ll repay, over a given period (you work out that time period with them). In many cases, the rate ends up being comparable to credit cards. I spoke to a licensed money lender, who declined to be named:
“If you are talking about covering part of the down payment, that’s possible. But I will tell you bluntly that we should not be the first people you approach. We are mainly here to give small loans, like payday loans. Not to lend you huge sums.
Maybe try GE money, or some other financing firm (see point 1 – Ed.) You can come to us if you just need that little bit extra, but not to cover the whole down payment.”
Whatever you do, make sure it’s a licensed money lender. Granted, it’s amusing when loan sharks cover car costs (What sort of moron creditor buys you something that helps you run away from them?) But no car is worth the potential harassment.
4. Just Give Up Purchasing and Join a Car Share Club
Old car with stickers
Car share clubs allow you to rent cars, at a price negotiated directly with the owner. Since any accidents are claimed against the club’s insurance (and not the owner’s), you tend to find people who’ll loan you their cars at pretty good rates.
It’s not like their cars are doing anything in the parking lot while they work.
I know it’s not the same as having a car on hand all the time. But if you can tolerate the inconvenience, it’s a better option than taking out huge loans at high interest. There’s no harm in trying it once or twice, before you decide to sign that loan form.
Over the coming week, we’ll be looking at other changes caused by budget 2013. So follow us on Facebook.
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