Buying a new or used car might be one of the most important purchases you make in life. Whether it is a car for travelling to and from work every day, or a family vehicle, getting to own it comes with a great deal of satisfaction. It goes without saying, though, that buying a car in Singapore is no cheap investment and can easily dry up your bank account.
Yet, even if you do not have enough money right away, it should not dim your dream of owning a car, thanks to the possibility of getting a car loan in Singapore. If you need a little help financing your car purchase with a loan in Singapore, it's a good idea to research local car loan rates and in-house car loans before deciding on the best course of action. Car financing can be confusing, especially if you are buying your first car. From the calculation of interest rates to down payments and tenure of the loan, everything can quickly get overwhelming. You may wonder, “How do I get the best car loan in Singapore?”.
This article is a step-by-step guide to help you understand how car loans in Singapore work. Furthermore, we will outline the tricks of getting the cheapest car loan in Singapore so you can finally turn that fantasy of roaming the streets of Singapore in your dream car into a reality.
Car Loan Rates in Singapore: How Do Car Loans Work in Singapore?
A car loan is an agreement between a borrower and a loan provider, indicating that a sum of money is lent to the borrower to purchase a car. In return, the borrower is required to repay the money together with the agreed interest within a specified period. If the borrower is late with payments, he/she will be penalised.
The loan contract for your car loan can be broken down into the principal (the actual amount of the loan) and interest. Car loans that take a longer period to repay, such as 60-72 months, can help bring down the monthly payments with a significant margin. However, such long-term loans mean that the total amount payable will be higher compared to a similar loan taken over a shorter period. When you pay the loan over a lengthy period, the chances are that the total amount paid will surpass the value of the car.
To demonstrate the importance of the loan term, we will compare a $20,000 car loan offered at a 3.75% interest rate across different loan terms. Note that the calculation only factors in the interest rate and excludes other costs, such as sales tax, that might be attached.
36 months (3 years)
60 months (5 years)
From the demonstration above, if you opt to repay the loan in five years, it means that you will pay $788 more compared to another person who clears it in 3 years.
Get to Know the Language Used in Car Financing Singapore
Before you can commence searching for the best car loan in Singapore, it is important also to understand the language used and important terminology, including:
Annual percentage rate (APR): APR is the amount you pay after borrowing a loan, including fees and interest. It is given as a yearly percentage. Taking a loan with a high APR implies that the total amount payable will be equally high. The best car loan in Singapore is the one that comes with a lower APR. Using Lendela’s services can help you easily compare the APRs for different banks before committing to a car loan agreement.
Principal: This is the amount that you borrow to buy a car. Note that the principle does not include the fees, penalties that might be incurred along the way, interest, and other applicable fees.
Car Loan Term: Car loan term, also referred to as the loan tenure, is the length that the auto loan will last, and it is expressed in months. Common car loan terms in Singapore were 36-48 months, but the period has increased over time as cars get more expensive. When applying for an auto loan, it is advisable to divide it by 12 to understand the number of years it will take to pay it off and the annual percentage rate (APR).
Car Payment: Once you take an auto loan, monthly payments will be required to clear the principal plus the interest. It is important to mention that figuring out the monthly payments can be a little complex because some banks progressively reduce the interest as the auto loan balance reduces. Luckily, you can always use a car loan calculator in Singapore to help you do the math!
Processing Fee: When dealing with certain banks in Singapore, an additional processing fee, also known as an administration fee, might be included when paying off car loans. However, the fee is usually waived when the loan amount is more than $20,000.
Car Financing Singapore: What are Your Main Loan Options?
Whether you want to buy a brand new or used car, there are two main types of financing that you can use—car dealer’s financing and bank loans. Which option you go with can affect your car loan interest rate (learn more about car loan options in Singapore in this in-depth article).
Bank Loan / Direct Lending
With direct lending or bank loans, banks or other financial institutions lend you money to buy a car of your choice. This is considered one of the best options for car financing because you get the opportunity to compare banks with the best terms and conditions. Once you get the loan, you can go ahead and buy the car.
Car Dealer’s Financing
Most car dealers work with banks to offer in-house car loans in Singapore. They handle most of the paperwork to make it more convenient for you when buying a car and making a loan. Although dealers have relationships with multiple banks, meaning that you can compare the more affordable options, they also claim a commission from the lending institution. This additional cost is charged to the client, a factor that makes car dealership financing more expensive compared to direct lending.
Useful Tips When Looking for Car Financing Options in Singapore
Now that you understand the different types of car loans in Singapore, here are five tips to follow when you are making an application.
Check Your Credit Score and Ensure That It’s Correct
The credit score is the measure of a person's creditworthiness and ability to repay a loan. The information you get on your credit report is converted into a four-digit score, ranging from 1000 to 2000. The higher you score, the better. If you have a low credit rating of close to 1000, you are considered to have a high risk of defaulting.
People with high credit scores are considered less risky and are likely to get lower car loan interest rates compared to those with poor scores. To calculate the score, the credit reference agencies gather your financial information from different parties, such as banks and online lending institutions. Since they rely on third-party organisations to gather your details, it is not uncommon to find reports with errors.
If you had taken a credit card loan and cleared it, but the details are not factored on the credit report, the score is likely to be lower than it should be. Therefore, checking the credit score rating before applying for an auto loan can help you identify such errors and have them corrected.
Because errors on your credit score can take some time to correct, it is advisable to check it early, perhaps even months before applying for a car loan.
Auto loan providers in Singapore are not just interested in your credit score. In addition, they will want to check your age, address, marital status, and employment status. The idea is to get a thorough understanding of the borrower’s loan repayment ability before approving the auto loan. This is key to understanding car loan rates in Singapore.
In-House Car Loan in Singapore: Look for a Good Financing Deal
Different banks in Singapore charge different car loan interests depending on the market demand, the borrower’s creditworthiness, the amount being borrowed, and their appetite for risk. You’ll have to go through all your options to get the best and most competitive car loan interest rate in Singapore. Lendela helps you compare loans for car financing in Singapore so that you can choose the best option tailored for your specific needs. Simply apply at lendela.com, and we’ll send your application to several car financing companies. Then, we’ll present the offers to you in a simple way so that you can compare them all at a glance.
When you compare the car loan offers, it is important to go beyond monthly payments or interest rates. Particularly, you should check the total cost of the vehicle plus the interest that you will have paid when the loan is finally cleared (more about the cost of living in Singapore).
First, use a car loan calculator Singapore and key in the desired amount as well as the length of the tenure. This will help you to determine the monthly payment. Then, multiply the monthly payment by the number of months for loan repayment and add the down payment.
Compare the offers from car dealers and financial institutions with Lendela to see who has the most competitive option. In some cases, especially when considering car dealerships, it might be possible to negotiate for better terms once you have chosen the offer. Even if you “only” negotiate for a 0.7% reduction of the interest rate, this small difference can help to reduce the total repayable amount by a huge margin.
Raise Some Down Payment
When purchasing a car, whether using a bank loan or an in-house car loan in Singapore, you are likely to get a better deal by making a significant down payment. Putting forward a down payment implies that you will need a smaller loan compared to having the bank finance the entire amount. It also means you shorten the term of the loan and cut down the monthly payments. Some banks will also be willing to offer you a car loan at lower interest rates.
Making a down payment also implies that you are less likely to suffer negative equity on in-house car loans in Singapore. For example, if the vehicle is involved in an accident and declared a total loss, the insurance payment will cover the entire loan balance and might provide money for your down payment.
When planning for a down payment, it is important to also prepare for other costs that might come along. For example, you might be required to pay licensing fees and applicable taxes. It is advisable to pay these additional costs upfront as opposed to including them in the financed amount.
A Co-Signer Can Help You Get Lower Car Loan Interest Rates
If your credit score is poor, working on it can take time. To speed up the process of securing a car loan with a lower interest rate, you can get a trusted friend or family member with an excellent credit rating to co-sign the loan. This implies that the individual with a good credit history lends his/her reputation to help you get lower interest rates. In such an arrangement, you need to ensure that the loan is repaid as agreed because defaulting is likely to affect both the borrower and co-signer's credit scores negatively.
An agreement with a co-signer works well when a borrower is progressively improving his/her credit score. Indeed, you can even ask for auto loan refinancing once your credit score improves. Refinancing involves re-looking at the terms and conditions of the loan and adjusting your interest rates according to your most up-to-date credit rating.
Prepare Yourself Financially
When you decide to buy a car, it is important to understand that the purchase will have significant financial implications for you. Therefore, it is crucial to think about it in advance and adjust your budgeting. If you are short on finances and are taking out a car loan, it is advisable to cut some spending in unnecessary areas to cater for the monthly payments.
If possible, you should consider increasing your revenue streams to reduce pressure on your finances. For example, can you take a part-time job to raise additional funds? This can come in handy to help you repay your car loan smoothly and improve your credit score.
Mistakes to Avoid When Looking for a Car Loan in Singapore
When tracking down good auto loans in Singapore, many people tend to focus more on the car and leave financing until the end. This mistake is likely to make you pay more for a longer period. Here are other common mistakes people make when buying cars. Note them carefully and try to avoid them!
1. Buying What You Can’t Afford
Taking out a car loan you can’t afford will likely cause severe financial strain. While it is true that having a car makes travelling easy and enjoyable, it comes with a high cost. From loan repayment to costs for gas and insurance, you need to be prepared to meet the additional costs.
Before signing an auto loan, figure out how it will fit into your budget. Here, you should aim to get the cheapest car loan in Singapore and try to clear it as fast as possible. Then, the funds you were directing towards financing the car can be channelled to other areas, such as growing your emergency fund.
2. Putting Expectations Too High
When it comes to cars, it’s easy to get swept up in all the marketing hype and expect perfection with your car purchase. However, this often results in disappointment when expectations are not met. Moreover, the moment an in-house car loan dealer realises that you are willing to splurge on the perfect car, it becomes easier to charge you with high-interest rates.
You are also likely to incur additional costs that could have otherwise been avoided. For example, some people buy cars expecting that they will keep them for ten years to justify depreciation rates. The fact is, however, rarely do people keep their cars for more than five years.
Instead of setting your expectations too high, use facts to make the right decisions. As opposed to thinking that a car will last for up to ten years, consider leaving the options open. If you use it for only three years and get an opportunity to sell and upgrade to a better one, pause for a moment to ask yourself, "will that still be a good idea?"
3. Being Unable to Walk Away when Necessary
Note that up until you sign the loan agreement, you have the option of walking away from it at any time. If you notice something likely to increase your repayable amount, like hidden costs, and fail to get it checked, it will be permanently embedded into the agreement. You may end up with higher interest rates and a more repayable amount, ultimately paying a higher amount than its actual value. The burden will also be higher because the additional money that you’re paying could be spent in other, more productive ways.
Make sure to interrogate the car financing deal and understand every detail closely. You might even consider seeking expert assistance with the financing deal to get it right. If you notice that something is wrong, do not hesitate to walk away!
4. Letting Emotions Control You
Trusting your gut is sometimes a smart move in life, but it may not be so when it comes to buying a car.
Being overly emotional is likely to hamper your ability to compare available deals, and you’re more likely to be talked into buying a car that’s way out of your budget.Even if you feel attached to a car being offered by a specific dealer, it is a good idea to check what other sellers offer. If it is a 4x4 double cabin, try to ask yourself questions like, “Am I getting the best deal?” and “What alternatives do I have?”.
How to Apply for the Best In-House Car Loan in Singapore
One of the most important things when applying for a car loan in Singapore is identifying the best loan provider to work with.
This is where Lendela comes in. With our online application service, you will not only get access to multiple personalised car loan offers from Singapore banks and financial institutions via just one application – you will also be able to compare them easily and make sure that you select the best possible option.
After you’ve completed the simple application, we will send your application to car loan providers in Singapore and come back to you with offers that are tailored for your unique situation. We will also ask you to upload the required supporting documents after your application is submitted. Documents that are commonly required by the banks include:
Vehicle Sales Agreement
The vehicle sales agreement is a confirmation of the sale of the car showing all the details. Even before taking the sales agreement to the bank, it is vital to study and understand all the details carefully. Particularly, you need to be clear about the total amount payable, monthly payment, and interest rates. You also need to know the impact of default.
Proof of Employment
A necessary step to approving a car loan with a bank in Singapore is proving your ability to repay the money. You need to provide proof of employment and income history using documents such as pay slips, bank statements, income tax statements, and the name of your employer.
Proof of Financial Commitment
Although the bank will check your credit score before finally approving the loan, proof of financial commitments will still be required. Here, you can attach documents that are related to a personal loan or house loan.
Sign Off the Auto Loan and Start Repaying
Once the deal is through, it is time to enjoy your new ride, but remember that the repayment journey has just started. You will need to uphold your end of the terms and conditions, which means repaying the car loan on time every month. To avoid forgetting or being late with repayments, consider asking your bank to deduct and remit the monthly payments to the bank automatically.
What If You are Unable to Replay a Car Loan in Singapore?
When the COVID-19 pandemic struck in 2020, it caught people unaware, and its impacts, such as the collapse of businesses and job losses, have been massive. Other things that can make one unable to service loans include medical bills, losing jobs, and natural calamities.
So, what do you do if you are caught up in any situation where you cannot repay a car loan in Singapore? Here is a solution:
If your vehicle’s value is more than the balance of the loan, it is advisable to sell it and clear the balance before missing payments. You might even be able to raise enough money to purchase a cheaper car. Note that an additional valuation of the vehicle might be required to confirm its current value.
If you start experiencing difficulties servicing your car loan, reach out to the bank and discuss how you can work out a way forward. Most financial institutions in Singapore are willing to listen and even try to assist you in overcoming your challenges. For clients who have been consistent with their monthly instalments, it might even be possible to negotiate new car loan rates.
Getting the best car loan in Singapore is just as crucial as the type of vehicle you decide to purchase. Do not fall into the temptation of randomly picking a financing option. Instead, have a look at all available options and compare the different offers. Be sure to also look at the entire picture by factoring in not just the monthly payment but also the total repayable amount and interest. If you are ready to see what car loan options in Singapore are available to you, start your loan application with Lendela and compare your options today.