Buying a car in Singapore gives you the luxury of travelling in comfort at your own convenience, but not many of us can afford to buy a car with our income.
This is why car loans in Singapore might be your best bet to own a car. However, you must consider interest rates and other charges before you apply for a car loan.
This article will help you understand how to calculate car loan interest Singapore and show you how to use a car calculator to check your monthly car installments.
How Much Can You Borrow For A Car Loan?
The loan amount depends on your annual income, credit score, and your Total Debt Servicing Ratio (TDSR).
The TDSR refers to the portion of your income that goes towards monthly debt obligations, including the current loan you are applying for.
The maximum car loan you can borrow in Singapore is usually 60-70% of the car’s purchase price or Open Market Value (OMV).
For example:
- If the vehicle’s OMV is less than or equal to $20,000, you can get financing for up to 70% of the car price.
- If the vehicle’s OMV is more than $20,000, you can borrow up to 60% of the purchase price of your car.
What Do COE, OMV, ARF, And PARF Mean?
Before we show you how to calculate car loan interest Singapore, you need to know these acronyms to understand your car loan structure.
Certificate Of Entitlement (COE)
Anyone who wants to purchase a new or used vehicle in Singapore must obtain a COE. It’s a legal document that gives car owners the right to register, buy and use a vehicle for 10 years.
COEs are an integral part of the Vehicle Quota System (VQS), a scheme implemented in Singapore to regulate the use and growth of vehicle populations on roads.
The cost of a COE varies based on the vehicle price, model, and category as per the VQS. For example, the COE for an average sedan can cost around $70,000 to $100,000.
Open Market Value (OMV)
The OMV is the original price of a car, excluding Singapore taxes. It’s basically the price payable when a car is imported into Singapore without additional fees such as the COE.
The Singapore customs calculate the OMV, which includes a car’s purchase price, freight insurance, and all other charges related to its sale and delivery to Singapore.
Additional Registration Fee (ARF)
This is a type of vehicle tax paid during car registration. Its cost depends on your OMV and is at least 100% of the OMV.
- Preferential Additional Registration Fee (PARF)
Cars that are less than 10 years old can claim a PARF rebate if you de-register the car before its COE expires.
At the end of 10 years, after your COE expires, you will receive a PARF rebate, which is usually 50% of the ARF paid when registering a vehicle.
How Long Should Your Car Loan Tenure Be?
Most banks in Singapore provide a maximum loan period of up to seven years for a car loan. However, you will end up paying more interest for a longer loan tenure.
Pick a shorter loan period if you think your monthly installments are affordable and within your budget.
If you are purchasing a second-hand car, the bank determines your maximum loan tenure based on the car’s registration date.
A COE is only valid for 10 years in Singapore. Thus, if someone wants to buy a six-year-old car, the loan tenure decreases to four years, as the car has only four years of use permit left.
It’s difficult to obtain a loan for a “COE car”, which refers to a car that requires COE renewal because these cars are either scrapped or worthless in Singapore.
But there may be a few exceptions to the rule, depending on the lender you choose.
How To Use A Car Loan Calculator
Many banks provide an online car calculator on their websites to help customers calculate their car loan installments.
It is a handy tool that you can use to know how to calculate car loan interest Singapore.
You need the following details to calculate your interest rate:
- Car price
- Downpayment
- Interest rate
- Loan tenure
Use the above details to generate your car loan payment details.
You can also use the mathematical formula (I = P × R × T) /100 to calculate your car loan payment yourself.
Where:
I = the total interest amount you will pay by the end of your loan tenure
P = the principal amount
R = the interest rate
T = the loan tenure
Here’s an example to help you understand better.
Imagine you are taking a car loan of $60,000 at an annual interest rate of 3.88% per annum for five years, which means your:
P = $60,000
T = Five years
R = 3.88%
Now, I = P × R × T/100 = $60,000 × 3.88% × 5/100 = $11,640.
So your total loan repayment = $60,000 + $11,640 = $71,640
Hence, you will pay $11,640 as your interest cost, with $60,000 of your principal amount and a total loan of $71,640 to be repaid by the end of your car loan tenure.
This amount excludes the loan processing fee and other charges.
How To Lower Your Car Loan Payment
Apart from seeking car loans with low interest rates, here are a few methods to help you lower your car loan payment:
Buy A Less Expensive Car
Before buying a car, note that your set of wheels is valuable only for the first 10 years. After which, you need to renew your COE and pay a renewal fee to use your car for the next five to 10 years.
COE renewal depends on your vehicle category and its statutory lifespan.
You can only renew your COE once, which means you can use a car for a maximum of 20 years.
Therefore, consider purchasing a less expensive car because even if you buy a big-budget car, you cannot use it for more than 20 years.
Shorten Your Loan Tenure
Shorter loan tenures can help you reduce the interest you pay, and thus, lower your car loan payment.
You can borrow money from relatives or your family, and pay a higher downpayment to reduce your loan term.
Trade Your Car For A New One
You can trade your used car at a dealership and purchase a new car. The dealer will deduct the price of your old car from the loan amount and grant you a loan on the remaining amount for a new car.
Downsize The Loan Amount
Downsizing means selling your used car to buy a less expensive car. You can receive a higher amount for your old car when you sell it yourself instead of going to a dealership.
Other Factors To Consider When Getting A Car Loan
While several places are accessible by public transport in Singapore, a car gives you the flexibility to travel whenever or wherever you want.
A few things you must consider before committing to a car loan include the following:
Calculate The True Cost Of Owning A Car
After all, you are not only paying for a car but other costs, such as:
- COE
- ARF
- Car insurance
- Maintenance charges
- Road tax
- Miscellaneous costs
So consider these additional charges before you take a car loan.
Check Your Credit Score
Banks will be stringent before approving your car loan. Buy your credit report from Credit Bureau Singapore and analyse it before taking a loan.
A better credit score can help you get car loans with lower interest rates.
Ensure You Have Emergency Funds
We never know when fuel prices can shoot up or if an emergency will crop up. Always keep an emergency fund of at least six times your monthly income on hand before taking a loan.
Compare Your Monthly Income To the Car Expense Ratio
Ensure your car expenses do not exceed 20% of your monthly income, including petrol prices and loan installments.
Calculate Your Total Debt Obligation
Your TDSR should not exceed 40% of your monthly income because a higher TDSR can lower your credit rating. You may also face difficulty getting loans in the future.
According to TDSR rules in Singapore, your TDSR should not exceed more than 55% of your income. Otherwise, banks may refuse to approve your loan.
Where To Get A Car Loan
Here are all the car loan options available in Singapore to apply for a car loan:
Bank Loans
You can get a car loan from several banks in Singapore at an interest rate of about 2.28-3%. Here are some interest rates* offered by banks:
- DBS Bank: 2.28%
- Maybank: 2.99%
- OCBC: 2.09%
*Information correct at time of publication
All interest rates are approximate figures, and they can vary depending on interest rate changes by the Monetary Authority of Singapore.
Licensed Money Lenders
Licensed money lenders, like CreditMaster, can provide car loans at low interest rates. Fill up the online application form for a quick and flexible loan approval process.
Money lenders have a hassle-free loan process, which allows you to get a loan even with a lower credit score.
In-house Car Loan
Car dealerships in Singapore provide their customers with in-house car loans or recommend them to banks for a loan.
It’s a popular choice among car owners because such loan facilities are easy and convenient.
Get The Right Car And Loan For Your Lifestyle
So now you know how to calculate car loan interest Singapore.
But buying and owning a car can be expensive because of several taxes and duties, along with hidden charges.
If you still want to buy one for your convenience, assess all your loan options and debt obligations before applying for a loan.
Need help? CreditMaster offers affordable car loans and excellent service.
Apply for a loan now in just five minutes or contact us for more information. We will be more than happy to hear from you.
