Buying a car in Singapore usually requires financing, but the process of getting a car loan doesn’t have to be an intimidating one

SINGAPORE — Unless you can buy a car with cash outright, you’ll have to beg, borrow or steal. Most people, being generally law-abiding, opt for the middle option and borrow to buy one.

That’s nothing new; all around the world, cars are routinely financed. And Singapore, like any country, has its rules and regulations that govern borrowing. Most of these are designed to save people from themselves; nothing sets a person up for financial disaster than over-borrowing.

Here’s the down-low on Singapore car loans..

What documents do I need?
Proof of income is the main thing. A notice of assessment from the IRAS that shows your taxable income, computerised payslips, or a letter from your employer should do it. Of course, some identification will be required, so you’ll also need your NRIC or, if you’re a foreigner, your passport and employment pass or work permit. And no, you don’t need to have a trustworthy face.

How much can I borrow?
MAS regulations on vehicle financing are pretty clear: for cars with an OMV of up to $20,000, you need a down payment of at least 40 percent. Anything above $20,000 requires at least 50 percent up front. The longest you can take to pay it back is 5 years.

READ MORE > What does “OMV” mean?

So if a car’s selling price is $100,000, you need at least $40,000 in cash (assuming it has an OMV below $20,000). For a $150,000 car, budget $75,000 for a down payment (don’t worry, its OMV will be above $20,000 at that price).

How do the banks decide if I can pay them back?
First, it helps to have a clean credit history. Ever been tempted to skip a credit card payment? Don’t do it. There’s a tattletale credit bureau that, when asked, will raise a red flag and accuse you of being a deadbeat.

Second, if you have other loans to service (like a housing payment or yes, those evil credit cards again), then that will obviously curtail your borrowing ability for a car.

Luckily, the banks don’t need to know about that time you borrowed ten bucks from a colleague because you left your wallet in the office at lunchtime and conveniently forgot to pay him back.

But how much will they actually lend me?
There’s no concrete rule, but assuming you don’t have other debt to service, local banks are comfortable if your monthly car payments are 20 to 40 percent of your salary.

Using the middle figure of 30 percent as a rough gauge, if you take home $3,000 a month, you’ll likely qualify for a car payment of $900 a month.

How about some real world examples?
Let’s take a quintessentially dependable Japanese saloon like the Toyota Corolla Altis. With current pricing and the latest Drive Happy discounts and promotions, including a free upgrade to the top Elegance spec, the car’s total price is $104,988.

A 40 percent down payment would be $41,996, with a monthly repayment of $1,174.80. Working backwards (again from 30 percent), that tells you that earning about $3,900 a month (and having no other loan commitments) would qualify you for the loan, if necessary.

Anything more exotic than a quintessentially dependable Japanese car?
You could opt for the Toyota Prius C, a petrol-electric hybrid that sips only 3.9 litres of petrol for every 100km — less than some motorcycles. It requires a 50 percent downpayment, and with a purchase price of $100,988 that comes to $50,494.

But thanks to the higher deposit, the monthly repayments are $941.71. That tells you that, paradoxically, the more cash you have for a down payment, the less you need to earn every month. Isn’t life grand?

And how can I get the cheapest loan?
Actually, when you work with an authorised distributor’s partner banks, you are usually entitled to a discount for in-house financing. This limits the benefit of trying to find a lower-interest loan elsewhere, but it does save you the search. And the bigger, more reputable car dealers often have enough clout to bargain for highly competitive interest rates on your behalf.

If I fail to qualify for a loan, is there anything I can do?
Actually, if you’ve only just missed some kind of qualifying threshold, the situation can be salvaged. Stumping up a bit more than necessary for the down payment in order to lower the monthly payment would help — time to liquidate that priceless comic book collection, perhaps?

Sometimes getting a guarantor can help to clinch the deal, too. That’s basically someone the banks can (legally) turn to to ask for payment if you miss an installment.

All this sounds very complicated and intimidating
Actually, if the mathematics are in your favour, the process can go very smoothly. A car loan is usually approved in two working days, sometimes less. You’ll be jumping into that new ride in no time.

The main thing to remember is that while the temptation to splurge on a new car is understandable, choosing one that you can comfortably afford will bring you more joy than driving something fancy that enslaves you financially for years.

The freedom of the open road doesn’t have to be lined with heavy tolls.

READ MORE
OMV, PARF, CEVS explained… and more!

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