5 things to know before you apply for a Car Loan in Singapore
Car Loans | Loansby Priyadarshini 22 September 2020
Want to buy your own car? Planning to take up a car loan? Singapore is deemed to be one of the most expensive places in the world to live in hence, to own a car here can be an exorbitant affair. Many Singaporeans consider owning a personal car as a symbol of success and it is a big deal to even own a modest family sedan. In the Lion City, a humble sedan will cost you an estimated S$110,000 and upwards. The trend in Singapore shows that almost everyone who owns a car had purchased it through a car loan.
Here are few pointers for you to remember before you head out to apply for a loan, especially because it could turn out to be a huge responsibility.
Number one on the list is to find out your credit score. Now, for those who do not know what credit scores are, it is a score every person is allotted basis their past data of loans taken and cleared. Banks will not offer you maximum loan quantum they are allowed to offer, but they will offer you a loan amount based on how good your credit scores are. This automatically means that in case if you have a poor credit score then the bank will offer you a lesser loan quantum.
Further, if your credit scores reflect major faults and poor grades like of grade C then consider your bank loan application to have gone for a toss. This is why it is important to build a worthy credit score before you apply for major loans like home loan/car loan. Want to find out your credit score? You can do it easily from the Credit Bureau of Singapore (CBS) and it will cost you around S$6.42.
But, first Home Loan
We’ll always suggest first you secure a home loan for yourself before you take up a car loan. This is for obvious reasons like a home is vital in your life whereas a car is not. Also, the city has a well-connected public transport system, and even if you do not have a private vehicle you can still move around easily. Apart from this, if you apply for a home loan while you already have a car loan upon you, it is going reflect negatively in your credit background. Chances are that you might get a lower quantum for a home loan and have to compromise on the property you wish to buy. It does not look like a good idea to be stuck in a small, uncomfortable home just for the sake of buying a car. So, choose wisely!
Research & Compare
In Singapore, car loans are usually priced at 2% to 3% interest rate per annum. You have to research well and compare the prices and interest rates before you make your final decision. You may find it exhausting to visit multiple banks and discuss interest rates, but the legwork you undertake now will go a long way. Even slight differences in interest rates can make huge cost savings over a period of time. Look for different sources of financing and compare the offers they are laying on the table. There is no sense in taking up a heavy car loan. After all, you want a car, not a burden of loans.
Car Loan & your Expense Ratio
This is the part where you calculate your income and expense ratio once you have a certain loan amount to pay. Apart from the monthly loan, you will also have to pay for road tax, car insurance, parking charges, maintenance, fuel costs, electronic road pricing (ERP charges), etc. So, work out your expenses in a manner that your estimated monthly costs on your car do not exceed 20% of your monthly income. If you are in a spot where you figure that the total costs for your car, monthly is more than 20% of your income then probably it’s a good idea to buy a car at a later stage in your life.
Back-up Plan for Loan Repayment
The last and the most important thing to keep in mind while applying for a car loan, is that you should have a back-up plan for loan repayment in case of unforeseen situations. Ask yourself how will you repay the loan if you lose your job? Do you have enough savings? What if it takes a long time to generate another income? You need to have some extra savings so that you can sustain monthly loan repayments at least for a few months. A car is one such commodity that has a high depreciating rate and it is not easy to re-sell a car. So, recouping the money you had spent is not an option. The idea is to have a sustained loan repayment capability, do not take up a car loan just because financing sources qualified you on paper.
Would you like an expert’s advice on car loans? Get in touch with us for a consultation.