Auto Finance 101: Understanding Loan Eligibility, Money News
Unless you are truly blessed financially, most of us tend not to have the cash on hand to pay for our cars in full.
Most of us look to auto loans to finance our wheels – now isn’t a bad time to look for one too, as interest rates have been cut dramatically as banks seek to entice buyers. potential cars to take out a loan.
If you are a first-time car buyer, the legality and terminology involved can be a bit complex.
But don’t worry, we’re here to break down that technical jargon into an easy-to-understand guide.
Understanding loan eligibility
When purchasing a car, you can search for financing options from one of the following two sources.
You can either apply for a bank loan (either independently or through your dealership) or opt for an in-house loan if your dealership offers you that choice.
Buyers of cars with an Open Market Value (OMV) of $ 20,000 or less will be allowed to lend up to 70% of the final purchase price.
Buyers of cars with an OMV of $ 20,000 and above will only be allowed to lend up to 60% of the purchase price.
The maximum term for a car loan is seven years, although the term can be affected by the remaining life of a car (if you are buying used), as well as your risk profile.
Loans to dealers are less supervised because they are less regulated.
It is not uncommon to see parallel importers offering up to 100% loans, with $ 0 down payment on some of their offers.
The terms are also negotiable, which means you can apply for the term, interest, and loan amount that best suit your needs.
You can also take advantage of the lump sum payment system.
In short, to calculate your total monthly reimbursement, the dealership will take the final sale price of your car, and subtract the PARF value of your vehicle.
The value is then divided by the number of months, and once the loan interest is factored in, that final number is your monthly repayment.
This program gives you the luxury of paying lower monthly car installments, although you’ll have to repay the PARF value to the dealership on your last installment if you decide to renew your car’s COE.
However, dealer loans tend to have much higher interest rates, going up to 4.8% per annum.
How can I request it?
We’ve actually written a detailed guide on the whole process here.
Essentially, you will need to be able to provide proof of income, typically for a period of around 12 to 18 months.
This can be obtained from the IRAS, your CPF contributions or even computerized payslips from your employers.
Proof of identity and residence will then be required to process the documents as well. The documents required will vary depending on the choice of financial institution, so check before applying!
What to watch out for
A sure-fire method to compare loans is to look at their respective interest rates. The higher the interest rates, the more you will pay over a period of time.
Juggle your down payment and the length of the loan, because excessively long loan terms mean your car would have cost you more.
Pay the maximum amount you are comfortable paying up front to minimize the financial penalty in the long run!
Don’t be afraid to shop around and look for other financial arrangements.
Also note that the advertised rates you see online are only indicative – the actual interest rate you will get will vary based on your credit score!
Motorist loan service
We’ve partnered with reputable financial institutions for a hassle-free car ownership experience.
Our competitive interest rates and administrative assistance services will help you pay for your current car loan (if you have one!),
If you are looking for an alternative to your typical bank or dealership loan, look no further!
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This article first appeared in Motorist.