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What is car loan?

The convenience of having a car cannot be overstated. Imagine going grocery shopping, carrying bags after bags of heavy groceries and boarding a bus or train packed with people. It’s probably going to be very frustrating. How nice would it be to be driving in the comfort of your own car and not jostling among people.

Added to that, you’ll get to save time on the road, and the time saved can be put to better use. More importantly, with a car, you’ll get to enjoy the freedom and independence that a car brings.

With all the benefits that owning a car affords, buying a car is considered a big step for many. It requires a substantial financial investment. You can either use savings or choose to take out a car loan instead.

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Why Should I Consider Getting A Car Loan

A car loan can be your timely and reliable source of financial need. There are many reasons why you can consider getting a car loan in Singapore including:

1. High Car Costs
We all know that car prices on our sunny island are extremely expensive. The COE (Certificate of Entitlement) is the primary reason for this. COE is a legal document issued by the Singaporean government that enables you to own, register, and drive a car in the city-state for either 5 or 10 years.

2. Low Interest Rates
Interest rates from car loans are lower than normal personal loans, mostly because you will be using the car you purchase as collateral.

To illustrate this, if you wish to buy an entry-level car worth $100,000 that has an OMV of $20,000 and your credit score, income, and other factors that lenders consider check out, you will be required to pay $30,000 as your down payment and you can get financing for the rest ($70,000) for a maximum period of 7 years.

3. Strong Regulatory Environment
In Singapore, car loans are regulated by the Monetary Authority of Singapore (MAS).

MAS determines the loan quantum which restricts your monthly debt repayments to less than 60% of your gross monthly income, the TDSR (Total Debt Servicing Ratio) which is currently 30% for vehicles valued under $20,000 and 40% for vehicles valued over $20,000 and the maximum loan tenure which is currently 7 years.

The Hire-Purchase (Motor Vehicles) Regulations 2013 stipulates the minimum deposit amount which is 30% of the cost of the car.

4. Avoiding In-house Financing
These costs explain why most Singaporeans rely on car financing to buy their cars.

You should, however, not be so quick to accept your car dealer’s in-house financing option because such financing is usually more expensive. As an example, car dealers often offer a sweetener called “overtrade”, where you borrow 70% (instead of 60%) even for a car whose OMV is greater than $20,000 and which means you will have paid a down payment of 30% instead of 40%.

5. Better Car Than You Can Afford
If you have been saving for a car and your savings are currently $100,000, you can only buy a car worth that much.

However, with a car loan, you’ll be able to buy a car worth $150,000 simply by taking a low-interest loan of $50,000 payable through our flexible loan tenures. Newer cars also tend to have better fuel efficiency.

6. Financial Flexibility
You may find yourself having to sacrifice other luxuries such as going on a vacation, having a nice meal out or growing your business in order to save the money needed for a new car.

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