The recent big news on loosening of car loan policies have cause a little “hoo-ha” in the car industry and car watchers. The easing of car loan guidelines by the Monetary Authority of Singapore (MAS) caught many by surprise, as strict car loan guidelines were only implemented just three years ago.
New Car Loan Changes in 2016
MAS mentioned that the adjustments is based on the sustained moderation in certificate of entitlement (COE) premiums and in the resulting inflationary pressures over the last three years. The revised rules allow higher borrowing limits, and longer loan tenures.
Car buyers can now take a bigger loan. Rules have been relaxed to allow buyers to borrow up to 70 per cent of the car price and pay it back over a maximum of seven years, instead of five.
This applies to cars with an open market value (OMV) of up to $20,000. Previously, the maximum loan-to-value (LTV) ratio of such cars was just 60 per cent.
For vehicles with an OMV above $20,000, the LTV is now 60 per cent, up 10 per cent from previous 50 per cent. The maximum loan tenure will also be seven years, also up from five years.
MAS’s deputy managing director Ong Chong Tee said: “In 2013, when we introduced the measures, our immediate aim was to help restrain escalating COE premiums and consequent inflationary pressures.
“Since then, demand conditions have moderated and it is timely to ease the measures.”
The MAS will continue to have the LTV and loan tenure framework in place in the long run, this is done to promote financial prudence and to support the promotion of a “car-lite” society.
Many from the industry called it as “good news”.
Alvyn Ang, Cycle & Carriage’s director of multi-franchise operations, said: “It is definitely good news for the industry because it will help a lot. It should push those buyers still sitting on the fence for whatever reason.”
Mr Ang, who is in charge of the Mitsubishi, Kia and Citroen brands, hailed this as “the best time to come in” to the showroom, especially since passenger car COE premiums have fallen by up about S$30,000 in the last three years.
He added: “We expect the cuts to generate a lot of interest in the market.”
The new measures have boosted affordability for many car watchers.
Revised Car Loan Ruling
The revised financing restrictions will apply to non-MAS regulated entities that extend motor vehicle financing on a hire-purchase basis and licensed moneylenders. This is of course a welcome move by licensed financing companies as it could help them in attracting more borrowers.
COE prices
COE prices have caused a havoc in the car industry. It had spiked to a big high of $92,100 for small cars and $96,210 for big cars which led to debate in the Singapore government on how to control COE prices to keep inflation and Singaporeans in check. Car Loan Cooling measures were introduced to cool down the demand and COE prices.
COE prices have since stabilised from April last year, decreasing steadily until premiums for small cars were below $50,000 for the first time in four years.
However, many experts are also sceptical of the new move which could lead to an immediate increase in demand for cars due to the current economy. The demand of new cars could have been caused by (private-hire firms like) Uber, which could have been causing the COE prices to be held up.
The new car loan changes will definitely affect many especially those in the lower income bracket or young families. The new car loan measures will allow them to pay lesser each month which increasing the affordability of having a car.
Summary: Is it worth to get a Car?
Yes! But only if you had been planning to get one before the announcement. This is because you had the financial and mental preparations for a higher downpayment and higher monthly repayment. With the new measures, one would have better budgeting options.
No, if you hadn’t been planning to get a car. Many experts believe that the revised measures were there for a reason. Most importantly, the loan restrictions were there to enforce Singaporeans to be sure that they can repay their loans.
However even with the new cooling measures, car buyers may need personal loans. In simpler sense: getting a personal loan fro the down-payment, and then apply for the car loan. This is tricky as car loans have a Debt Servicing Ration (DSR) of about 30%.
That means the loan repayment, plus the repayment of any other loans, can’t exceed 30% of your income. If you are getting a personal loan that’s too big, your DSR will shoot up and you won’t qualify for the new car loan.
BEFORE:
Open Market Value (OMV) less than or equal to $20,000
- Maximum LTV: 60 per cent
- Maximum loan tenure: 5 years
OMV more than $20,000
- Maximum LTV: 50 per cent
- Maximum loan tenure: 5 years
NOW:
OMV less than or equal to $20,000
- Maximum LTV: 70 per cent
- Maximum loan tenure: 7 years
OMV more than $20,000
- Maximum LTV: 60 per cent
- Maximum loan tenure: 7 years