Published on March 11, 2022
3 Tips To Choosing The Right Car Loan For Your Corporate Fleet
Utilising a commercial car loan to purchase a fleet of vehicles to kickstart your business is not a decision to be made on a whim as it involves a lump sum of money and a huge amount of responsibility. Hence, it is always recommended that you do intensive research to find out what is best for your business and your needs before committing to a loan.
However, it is also understandable for things to get confusing sometimes when making comparisons between the different types of car loans.
Before delving deeper into some tips that will help you to choose the right type of car loan, here is what you need to know about the three types of car loans available in Singapore.
1. Fixed-rate financing
Car loans in Singapore typically charge a fixed interest rate, which means that it stays constant throughout your entire loan tenure. This is one of the most popular types of car loans offered by banks as interest rates are often competitive. However, it is also worth noting that even if interest rates do drop during your loan tenure, you will still be liable for paying the interest rate that was initially agreed on.
2. In-house financing
An in-house car loan is also a popular option in Singapore as it has less strict requirements compared to banks. If you have had your loan applications rejected for reasons such as unfavourable employment history or bad credit scores, applying for in-house financing may give you better chances of securing a car loan. It is mostly offered by finance companies like car dealers and tends to get approved a lot quicker.
3. Balloon financing
Balloon financing has been gaining traction for being an alternative car loan option that allows borrowers to pay a lower monthly instalment by excluding the Preferential Additional Registration Fee (PARF) rebate in the total loan amount. On the other hand, the interest rate is higher than a typical car loan and you will still have to repay the PARF rebate at the end of your loan tenure.
Tips for choosing the right car loan
With a better understanding of the types of car loans available in Singapore, here are some tips that will help you in choosing the right option for your business.
1. Come up with a budget
Committing to a car loan is like making a big purchase – it is something that will be with you for years to come and entails a huge sum of money. Thus, it is vital to come up with a budget that works for you and your business to see if this is suitable for you.
Determine how much you can afford to pay monthly, including all the other expenses such as credit card bills, house payments and more. The total debt servicing ratio (TDSR) that the government came up with is a good rule of thumb to follow when planning a budget. It essentially means that you can only borrow 60% of your gross monthly income and this applies to car loans too.
Remember to take into account maintenance, insurance, taxes and any other costs that come with owning a fleet of vehicles.
2. Decide on your loan amount
After coming up with a budget that includes how much you can afford to pay per month, you can then decide on your loan amount.
Some finance companies in Singapore may have set a minimum or maximum amount you can borrow while some lenders are not obliged to lend you the full amount so it is important to take these into consideration too.
3. Finalise the flexibility of your loan
Before signing the loan agreement, make sure you finalise the flexibility of your loan with your lender. You may want to check if your lender allows flexible repayments such as additional payments or the ability to clear off your loan early without penalties. Though these are highly unlikely to happen if you were to borrow from banks, there is no harm in negotiating the terms when it comes to private finance companies
The bottom line
Owning a fleet of vehicles may be beneficial for your business but it is also necessary to take into consideration the overall cost you will have to fork out and the huge responsibility you will have to undertake. Remember to only borrow what you need and ensure that you pay off your monthly repayments on time to prevent your debts from accumulating.
Get in touch with us here at Swee Seng Credit if you would like to find out more about in-house car loans. We offer a fast, transparent and hassle-free borrowing service coupled with no middlemen markups on interest rates.
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What is the maximum loan period?
The maximum loan period is 7 years. However, as with all loans, you will need to pay more interest with a longer tenure. Hence, as long as the monthly instalments are manageable, you should pick the shortest loan tenure that you can handle.
Used car loans have varied maximum loan periods. As a result of the COE implementation, car loans are only for the first 10 years of a vehicle’s lifespan. The maximum loan period for used cars is determined by the amount of time left in the COE since registration of the vehicle. Hence, if you are buying a 6-year old car, the maximum loan tenure that you are entitled to is four years – since the car has only four years left. It might be difficult to obtain a car loan if you are buying a car that is more than ten years old from its initial registration date. However, some finance companies do offer exceptions, so it is good to do some market research beforehand.
What are your car financing options?
There are three types of loans you can apply to finance your car:
1. In-house financing
Whether you are buying a new or used car, in-house financing refers to loans provided directly from the dealership. It is the most common, and the option with the least resistance. Car dealers tend to offer attractive financing solutions such as higher loan amounts and lower interest rates.
In addition to in-house financing, car dealers also work with local banks such as DBS, OCBC, Maybank, etc. to offer attractive rates, and a seamless as well as hassle-free loan experience. Some dealers may offer incentives or give you free goodies like service vouchers to sweeten the deal.
3. Balloon scheme financing
Balloon scheme financing refers to a loan that you take out on the car’s price without the Preferential Additional Registration Fee (PARF), but at a higher interest rate. The loan amount is then subsequently divided into monthly instalments that you have to pay.
This scheme is particularly attractive to first-time car buyers.
Even though balloon schemes have higher interest rates than other loans, they exclude the PARF amount in the overall loan, resulting in a lower loan quantum. This allows you to pay less each month so that you can have more financial freedom.
However, there is a catch. At the end of the loan, you need to pay the full sum of the PARF. Before we go on, here is what PARF is: PARF applies to cars that are still using the original COE and is less than 10 years old. So, you are entitled to a PARF rebate when you deregister a car that is less than 10 years old, allowing you to recover the initial ARF paid when you first registered the car.
Under the balloon scheme financing, if your car loan is S$50,000, and your car’s minimum PARF is S$10,000, you will only need to pay instalments based on S$40,000. Since you are not paying for the full value of the car inclusive of the minimum PARF rebate portion, the total amount has to be repaid at the end of the loan.
Thus, this finance scheme is more worth it and ideal if you plan to use your car for the rest of its life, or if you are disciplined enough to save and pay the PARF amount at the end of the loan.
Can foreigners buy a car in Singapore?
As an expat in Singapore, owning a car may be something that has crossed your mind multiple times, especially since many countries in the world are currently in lockdown, and you have to stay here for a prolonged period of time. While Singapore’s public transport system is highly efficient, nothing beats the convenience of having your own car. Foreigners who are not staying in Singapore in the long run should buy a used car since it comes with more benefits – affordable, has a lower depreciation rate, and is immediately accessible.
As an expat looking to own a car in Singapore, you are required to have a valid local or international license. International licenses are valid for use in Singapore for 12 months, and you have to convert to a local license after one year. In addition to licenses, it is also mandatory to have motor or car insurance before driving on the roads.
Since the costs of owning a car are high, expats can take up car loans to finance their vehicle. The same requirement for loans such as maximum loan amount and interest rates still apply.
How do you apply for a car loan?
After doing thorough research, you can choose to take on a new car loan with your dealer or go directly to the bank. It is best to submit an online loan application or make an appointment beforehand, should you choose to go directly to the bank.
Bring along the following documents, if you have, for a hassle-free loan application experience:
- Vehicle sales agreement
- Proof of income such as payslips, income tax, or CPF statement
- Proof of existing financial commitments like housing loans
- Employment details with the name of your employer and monthly income
If you need more advice or help with car loans, you can always reach out to a trusted finance company like Swee Seng Credit to guide you through the process.
Part IV: Conclusion
Upon reaching the tenth year mark of registration, your vehicle will automatically be deregistered unless you pay for COE renewal. There are two options that you can choose when it comes to COE renewal.
You can pay either 50% of the Prevailing Quota Premium (PQP) and have your COE renewed for 5 years, or 100% of the PQP for a 10-year renewal. The PQP takes the average COE prices across three months and thus is constantly changing. As the amount to renew your COE is high, there are COE renewal financing options available, such as a COE renewal loan. Should you choose to renew your COE for five years, you will no longer be eligible to renew it any further and are required to deregister your vehicle once it expires. A 10-year COE renewal allows you to continuously renew your COE even after it expires. One tip to deciding between the two is: If you do not wish to have a huge financial commitment or do not see yourself driving the same vehicle for another 10 years, then a 5-year renewal is sufficient.
In-house COE renewal car loans
Generally, in-house COE renewal loans have a simpler process however they come with higher interest rates when compared to banks. These interest rates are dependent on your loan amount and tenure. Sometimes, in-house COE renewal car loans have promotional interest rates to encourage customers to take up a loan with them.
Besides the simple process, in-house loans tend to have a faster approval rate than banks since some of them do not require credit checks. However, even if they do carry out credit assessments, most of the time these do not affect your chances of getting your COE renewal loan approved. Some companies in Singapore act as middlemen providing COE renewal loan services with varying interest rates. Since they are the middlemen, they may charge higher interest rates as compared to you going directly to the finance company. Thus, it is ideal to always do thorough research before taking up a loan.
Bank COE renewal loans
Banks offer some of the best COE renewal loans as their interest rates are typically lower and more attractive compared to in-house loans. While bank COE renewal loans are attractive, not many people are able to secure a loan as a result of bad credit scores. Banks often assess your credit to check on your financial capacity, and this process usually takes a few working days.
Aside from attractive interest rates, banks are also transparent and offer added security. However, banks do not accept direct COE renewal loan applications, and you usually have to go through agents like a finance company offering the same interest rates as the bank.
Now that we have shared the tips for buying a new car in Singapore and loan plans, you are now all set to purchase your first dream car. Remember to always do thorough research to find out more about the loan packages offered by dealers and banks before making your purchase.
Swee Seng Credit gives you more financial freedom through vehicle finance solutions like used car loans, COE renewal financing, and more! All of our finance solutions are tailored to your individual needs and circumstances, taking you a step closer to owning your dream car.