Which One’s Best For You?
Buying a car in Singapore can be financially draining for an average consumer. The costs of COEs alone can easily double up the value of a vehicle, making it nearly impossible to purchase a car without some sort of financial assistance.
There are quite a few car financing options available in the market that makes owning a car a bit more attainable. As a buyer, you can either loan an amount straight from a banking institution or work on a financial arrangement with the dealer that’s selling the car you want to buy.
Each car financing option has its own sets of advantages and disadvantages, in order to determine which among the options presented above is the most economical choice boils down on how high (or low) the interest rates are.
Below, we’ve broken down the good, the bad, and the ugly about the different car financing options currently available in the Singaporean market.
Many car owners in Singapore have taken out a loan to purchase their vehicle at some point or another. Bank loans are among the most popular car financing option because of their attractively low interest rates. Ideally, bank loans should be offered with a 2.70% flat interest rate, with an average tenure of five to seven years.
Given the relatively low interest rate, it’s easy to assume that bank loans are the most economical car financing option there is. While the interest rate may seem low, a huge factor that adds to the cost is the fact that it’s offered at a flat rate. Flat rates are relatively more expensive compared to rest rates mainly due to how they are computed.
Flat rates are less flexible compared to rest rates. In an event where you borrowed S$50,000 from a bank with a flat rate of 2.5%. Your flat interest rate would be S$1,250 (S$50,000 X 2.5) each year. Based on the computation above, you will be paying a monthly interest rate of S$104.17 on top of the principal fee for the vehicle. At the end of your contract, you will have paid S$6,000 in interest alone.
Many Singaporean clients shy away from financing their cars through dealerships because of the relatively high interest rates. When exploring the possibility of financing your car through a dealership, you need to choose who you partner with carefully.
While it’s true that most dealerships out have some of the highest interest rates in the market, there are quite a few good ones that pass through bank rates. The big advantage dealerships have over banks is their flexibility.
Dealerships are determined to sell more cars compared to banks, that’s why their more adamant to work with clients like yourself in finding a realistic payment scheme.
Dealerships are open to the idea of decreasing your monthly payment under the premise of extending the loan period. This flexibility alone can help you better manage your finances without having to worry about steep monthly fees. This is something you can’t easily get through bank financing.
When done right, taking out a loan either through a bank or a dealership can help you offset the inconceivably steep costs of cars in Singapore. If you’re thinking of taking out a loan to finance your car, make sure to do your research and run the numbers before signing any contract. Exploring all of the options that are available at your disposal can help you make an informed and economical decision.