Buying a car: Different loan packages and what they mean to you

Singapore is one of the most expensive countries in the world to own a car. It comes to no surprise that over 95% of the 1000 deals that we have successfully transacted requires a loan. In this article, Otua Auto explores and breaks down the different types of loan packages that are available to you as a consumer.

Bank loans

Atotua.sg, we almost always encourage our car buyers to apply for a bank loan compared to the other options. The reason is simple - Bank loans are the cheapest loan option available to buyers, so you can get the best price for your car. They are also the easiest to understand, without all the convoluted terms and conditions that are often overlooked and very much unfair to the average consumer.

The only disadvantage to bank loans is that they tend to be strict with their applications as they have to adhere strictly to any MAS guidelines that are imposed on them.

Pros

1. Cheapest financing option
2. Loan applications tend to be faster
3. Easy to understand
4. Easy and fast loan settlement

Cons

1. Strict requirements

In-house financing

Despite their name, in-house financing actually refers to 3rd party finance companies/institutions. These loans tend to have much higher interest rates that start from 3.XX% and upwards of 5%. They are often preferred for their lenient application process.

One of the core benefits of in-house financing is that it does not reflect on your total debt servicing ratios. So for car buyers who are looking to purchase a house in the near future or are looking to apply for business loans, in-house financing could be the ideal choice.

Do take note that the terms and conditions for inhouse financing are often harsh and brutal. With expensive early settlement fees and charges to exorbitant default penalties, it should be well noted that your payments are prompt and timely to avoid a painful bill at the end of the month.

Pros

1. More flexibility in their loan applications
2. Does not affect your total debt servicing ratios

Cons

1. Loan processing fees that starts from $200 to upwards of $1000
2. Much higher interest rates 
3. Some of the finance companies are extremely trigger-happy with tows when you are late on your payments
4. Expensive fees and penalties 

Lease to own schemes

Gained popularity recently. There are probably a 100 different variations out there, but the basic concepts stay the same. The actual ownership of the vehicle actually belongs to the financing company. Some of the LTO schemes include free servicing, road tax and insurance.

Generally, this is seen as a rental service provided by the finance company to you, and after a predetermined number of years, the vehicle ownership is then effectively transferred to you. 

These types of loans often come with attractive marketing headers like “Zero dollar drive away” or “Zero dollar down payment”. However, the terms and conditions are almost always extremely harsh and you can expect to drive the car till the end of its COE or you may suffer heavy penalties that can be upwards of 50% of the original car purchase price.

Pros

1. Fuss free “car ownership”, since most of the LTO schemes provide free car servicing etc.
2. Most of them provide 100% financing, so you can literally drive away $0

Cons

1. Insanely harsh penalties and settlement charges
2. You do not really own the car
3. Be prepared to drive the car until its end of COE to avoid heavy charges
4. If you should decide to “sell” the car early, the process is often convoluted and difficult
5. Expensive monthly installments, since you are really renting the car instead

Balloon Scheme

Relatively popular in the early turn of the millennium, the Balloon scheme financing is basically a loan on the vehicle’s purchase price less its Preferential Additional Registration Fee (PARF). Again, there are many variations of this scheme, but in general, they all result in a lower monthly payment for the car. However, your PARF still has to be paid eventually (usually at the end of the loan period).

The balloon scheme is by far the most complicated loan option available for consumers. It has since lost popularity due to it’s much higher interest rates and also most finance companies prefer LTO schemes which are of lower risk for them. 

Since the balloon scheme is pretty much the “ancestor” of the lease to own scheme, they have many similar pros and cons.

Pros

1. Much much lower monthly installment compared to all the other schemes
2. Some balloon schemes allow for lower down payment
3. Lower down payment often translates to better or fancier cars

Cons

1. Heavy and expensive penalties and fees (especially early settlement)
2. Be prepared to drive the car till the end of the loan tenure
3. You lose the PARF rebate for your car
4. Extremely detrimental if you “total loss” your car or if your car has irreparable damage

When it comes to finding the right loan packages for your car purchase, there’s no 1 size fit all solution to it. Proper financial planning is crucial. It’s always best to get expert advice to help you make an informed decision. If you need help deciding on which loan package fits you best, feel free to reach out to the client advisors at Otua Auto. As a premiere car dealership, we offer a full range of financing options and have tie-ups with various lenders so you can always be sure that we are offering the best financing options to you.

Why is it important to understand the selling price of your car?

Assuming you have always meticulously and religiously maintained your car - The condition is perfect, accident-free and with servicing records to boot. Now, what about your asking price?

Without a doubt, price is almost always the most important factor in car sales, and here’s why.

The perfect time for you to get the best price for your car (period of best opportunity for selling your car at a fair and reasonable price) is always *now*. With the wonders of the internet and websites like SgCarmart and Carousell, prices, especially for car resale, in Singapore, are transparent to every car buyer. Buyers who have been spoon-fed with pricing information from said websites have been looking and waiting for the right car to pop up in the market. If your car is priced correctly from the beginning, you are in the *best position* to get the highest price for your car while at the same time, attracting the maximum number of buyers who are sincerely interested in purchasing their next car .

• If your car is priced too low, you might attract plenty of buyers. But you could stand to lose thousands of dollars on probably the 2nd most expensive item you own
• If your car is overpriced, you will find it extremely difficult to attract buyers to your wonderfully maintained car, with little chance of any offers to pay your unrealistic price.

Depreciation is always working against you

We see this happen far too often. Car owners tend to prefer “stress-testing” the market for a month or 2 (sometimes 3) before deciding to follow market prices. Many of them are gambling on the off-chance that there might be a “Robert” who will accept their unrealistic prices. 

Unfortunately, these gambles often turn against you, as your car continues to depreciate its value on a daily basis. The average Japanese car depreciates at a rate of $22.50 per day and the average German continental car depreciates at a rate of $33.35 per day. Stress testing the market for 2 months pretty much meant that you have lost almost $2,000 in a short period of time. 

If you aren’t willing to spend $2,000.00 on lottery tickets, why do that to your car?