Have you been thinking of buying a car in Singapore, but you are short of funds? One of the methods you can use to get the vehicle of your dreams is car financing. This involves taking a loan to purchase the car and repay in instalments, but what options do you have?
This post digs deeper into car financing Singapore to help you understand everything you need to know. We will outline the main car financing options available in Singapore, the most important things in car financing, and the benefits to anticipate. Finally, we will tell you the simplest way to apply for car financing – using Lendela.
The Two Main Car Financing Options
There are two main options to consider when looking for car loans in Singapore; the car dealership and taking a direct car loan from a bank.
Car dealerships are perhaps the commonest methods of financing vehicle purchase in Singapore. Here, you only need to select the preferred car, and the dealer organises for financing through the preferred bank. Note that the dealer acts as the middle-agent between you and the bank, making the process pretty straightforward. Other benefits of using a car dealership to finance your car in Singapore include:
- Here, the process is very simple: You only need to tell the dealer the car you need, and he will work out the rest of the details on your behalf.
- You might find a good deal even with a poor credit score: Because dealers are businesses looking forward to optimising sales, it is possible to get a car even when your credit score is poor.
- Dealers have multiple options for you: The moment you check into a dealer, his primary goal is to convert you into a customer. Therefore, most sellers always have multiple cars with different requirements for their clients. For example, the dealer might recommend a used car for you if buying a new one appears a tall order.
Although a car dealership comes with these enviable benefits, it is important to appreciate that most banks pay a commission when clients are brought to them. This commission is likely to be somehow included in the dealership financing, pushing the cost of credit higher.
Using a car loan implies that you get directly to the bank for financing as opposed to working with a dealer. Although this might look like a long route, it comes with a number of benefits, including the following:
- You get more negotiating power: Dealing directly with the bank provides you with space to negotiate the loan's terms and conditions. For example, you can ask for a different payment structure and repayment period depending on your monthly income.
- Greater flexibility: When dealing with the bank, it is possible to get some leeway in the coming months if some issues, such as payment delays, arise. However, it is essential to notify the bank when delays are expected and get back to the agreed loan payment schedule after the disruption.
- Low-interest rates: Because you are working directly with the bank when using a car loan, there are no third parties to push the cost of credit up. Depending on the bank, it might be possible to negotiate for lower interest rates.
Understand the Following Crucial Components Used in Car Financing
Once you decide to go for car financing Singapore, it is crucial to understand the following things because they directly or indirectly impact the deal.
- Principal: This is the total amount that you borrow to purchase a car in Singapore. It is calculated as the value of the car less the deposit you make.
- Maturity Date: This is the entire period that you need to clear the loan.
- Interest Rate: The interest rate is the cost of car financing in Singapore. It is the amount that you pay on top of the principal. The interest rate is broken down so that you repay it plus the principal in instalments in the entire loan term.
- APR (annual percentage rate): If you only work with the monthly interest rate, it might be difficult to get the car financing deal's real picture. Instead, you should consider using APR because it factors in all other costs, such as administration fees and penalties that are associated with the car loan.
- Amortisation: This is a process whereby the amount of the fixed monthly payment on your principal increases and the amount applied to the interest decreases. It implies that your interest rate is calculated based on the reducing principal. Therefore, the interest you pay after the loan approval will be higher compared to several months down the line.
Main Advantages of Using Car Financing Singapore
When you own a car, it comes with a unique sense of achievement, pride, and satisfaction. This freedom is what car financing in Singapore seeks to deliver to Singaporeans and permanent residents (all about cost of living in Singapore). Other benefits of using car financing include:
You Get to Drive Off with the Car of Choice and Repay in Instalments
The truth about most assets, be they houses, machinery, or cars, is that they are very expensive (Why cars are so expensive in Singapore?). Because of the tough economic times, most people would find it very challenging to put this amount together. However, car financing in Singapore makes it possible because the bank pays off the cash, and you are able to drive off the car of your dreams right away.
You Can Enjoy Low-Interest Rates if the Credit Score is Very Low
Although car dealers or banks can come for the car if you fail to repay the money, they largely rely on your credit score to fix the interest rate. If your credit score is high, you are also likely to enjoy lower interest rates compared to another person with a lower score.
It is a Good Way of Building Your Assets
If you take a closer look at most people in Singapore, cars are the second most valuable assets after their homes. In the future, you might want to sell the car or use it as collateral to access more funds.
You can Use the Loan to Build Your Credit Score
When calculating credit scores, the Credit Bureau Singapore factors in a number of things, such as credit mix and timely payment of debts. Once your car loan is approved, it can also be an opportunity to improve your score because it increases your credit mix. If you strictly follow the agreed loan repayment schedule, your score will also improve significantly. Check our car loan calculator in Singapore.
Ensure to Do the Following before Applying for a Car Loan in Singapore
Thinking about the car financing you are taking can help you avoid pitfalls, such as being unable to repay in the coming months. So, here are the most important things that you need to do:
- Review Your Credit Score
To ensure that the credit score is correct, you should ask for your report and keenly go through it. Because the Credit Bureau Singapore relies on third parties, such as banks, to get clients' details, it is not uncommon to get errors as a result of omission. If you find such errors, ask the bureau to rectify them before applying for a car loan.
- Loan Repayment Ability
If the loan is approved, will you be able to repay it? Although this question might sound simple, it requires a deeper look at personal finances. To establish your repayment capability, think of other debts that you are paying at the moment and compare them against your monthly income.
Indeed, you should extend this consideration to other monthly payments, such as utility bills, rent, food, and contribution to the emergency funds. If you can comfortably meet all the costs without straining your finances, car financing will be a good option.
- Factor the Additional Costs that Will Come with the Car and Budget for Them Too
Driving a car to your destination and back is awesome, but this freedom, comfort, and luxury come with some costs. For example, travelling on the road requires your car to have insurance cover, which is an additional cost to your finances. Other expenses that might come along the way include parking fees when travelling to town and the cost of repairs.
If you fail to think about these costs, they are likely to come as a shock when you get behind the steering wheel and drive off. Remember also to follow the traffic rules to avoid penalties associated with breaking the law.
Things to Avoid when Looking for Car Financing in Singapore
For most people, the excitement of finally having to drive on the road can easily make them draw the wrong judgments about car loans in Singapore. So, here are some things that you should avoid when looking for car financing:
- Picking Loan Providers at Random
In Singapore, there are many loan providers willing to finance the purchase of your car, but selecting them randomly can be a big mistake. There is a risk of picking the loan provider with high-interest rates and punitive terms and conditions if you do that. To be sure of identifying the best bank, consider working with loan comparison sites.
- Not Thinking About Your Needs when Selecting a Car
Before making the first step to buy a car, failing to decide why you actually need it can be a major undoing. For example, if you only have your wife and one baby, a five-seater car might be a better option than a seven-seater vehicle. A pick up might come in handy for a person whose task involves hauling cargo to different towns in Singapore.
Simply put – do not just pick a car to match your friend. Instead, go for the model that will deliver the highest value to your life.
- Trying to Apply for a Car Loan on Your Own
As we highlighted earlier, there are so many things that come into play when looking for car financing. For most Singaporeans, making meanings of all these components can be challenging, especially if they have busy schedules. This is why you should always work with professional comparison sites to help you narrow down to bank with the best conditions.
Personal Loan: Alternative to Car Financing
If you still want to buy a car but feel that a car loan is not the best route to take, you might want to consider a personal loan. Unlike car financing, where the approved funds can only go into paying for your car, a personal loan gives you a free hand on how to use the cash. Indeed, the money is deposited into your account, meaning that you can walk to a seller, select the preferred car, and pay.
It is also important to note that because a personal loan is unsecured, your car will not be recovered if you fail to repay as per the agreement. However, you need to be disciplined to ensure that the cash deposited into your account after personal loan approval goes into paying for the vehicle of choice.
Lendela: The Best Way to Identify a Good Loan for Your Car Purchase
If you ask most people who have used car financing Singapore, they will tell you that the process can be pretty tedious. Imagine having to apply for the loan from several banks and taking a lot of time only for the loan request to get declined. It can be discouraging, especially for busy persons who can only spare a short moment for the loan application.
Now, you have a reason to smile because Lendela has come to help. Instead of juggling with many financial institutions and multiple applications, Lendela has simplified the process so much that it only takes the following few steps:
- You visit the Lendela site to make an application. This step is very simple and will only take a few minutes to complete because Lendela helps to do the bulk of the work.
- Get offers from different banks and financial institutions.
- Lendela helps you pick the best option and book an appointment.
- Sign the car financing agreement, and drive off in your car
When looking for car financing Singapore, Lendela can help you to identify the best bank. Our comparison platform is like having an expert to hold your hand as you wade through the complex world of car financing.