Published on January 9, 2022

Taking A Car Loan In Singapore: Part 2 – Fixed Rate & Balloon Financing

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Looking to get a car loan in Singapore to finance the purchase of vehicles for business purposes? There are three options to consider: in-house financing, fixed-rate financing and balloon financing. 


We have already covered all you need to know about in-house financing previously, so here is a rundown of what fixed-rate and balloon financing is all about.

What is fixed-rate financing?

Fixed-rate financing, which you may also know as term loan, is when the interest rate stays the same throughout your entire loan tenure. This is a common form of business vehicle loan typically offered by banks and finance companies, and is usually preferred as it gives the borrower a predictable monthly payment figure to work out a budget.

What is balloon financing?

Balloon financing may be less heard of but has been gaining traction as it is designed to allow borrowers to repay a lower monthly instalment, thanks to the Preferential Additional Registration Fee (PARF) rebate. However, the interest rate is higher than a typical car loan. 

 

Additionally, car owners will also have to pay an Additional Registration Fee (ARF), which depends on the Open Market Value (OMV) of the car. 

 

The PARF rebate is based on the car’s age at deregistration as well as the amount paid on ARF:

Age of car at deregistration

PARF rebate

Less than 5 years

75% of ARF

Above 5 but not exceeding 6 years

70% of ARF

Above 6 but not exceeding 7 years

65% of ARF

Above 7 but not exceeding 8 years

60% of ARF

Above 8 but not exceeding 9 years

55% of ARF

Above 9 but not exceeding 10 years

50% of ARF

Above 10 year

No rebate

Thus, to fully benefit from balloon financing, it is recommended to drive the car till it is ready to be scrapped.

So, what are the pros and cons of fixed-rate and balloon financing?

With fixed-rate financing as a car loan, you get financial security as it essentially means that you will not have to worry even if the interest rates increase throughout the years. Having predictable monthly payments also allow you to work out a comfortable budget, keeping your company on track to achieving financial freedom. On the other hand, having a fixed interest rate could also mean paying more than you would have to if interest rates dip. 

If you do decide to go with a balloon financing scheme, then you obviously get to enjoy lower repayments every month, while also giving you the opportunity to purchase more expensive cars. But interest rates are higher and there may be penalties should you decide to do early repayments. 

What happens when your loans are due for payment?

The best way to repay your car loan is, of course, by simply paying it off with cash before the monthly due dates. 

Alas, unforeseen circumstances may occur, resulting in difficulty making repayments. When that happens, other options include refinancing and selling off your asset. 

Refinancing means getting a new loan that will extend your repayment period so that you get more time to readjust your finances. However, that does come with paying a larger amount in interest due to the longer loan tenure. Credit scores will also be taken into account before you qualify for a new loan. 

The other option is to sell off your asset, in this case, the car you used the loan money to purchase. 

Now that you understand more about the common types of loans in Singapore for cars, it is time to make your decision. Get in touch with us here at Swee Seng Credit to find out more about available car loan options and we will advise you based on your situation to the best of our ability.