Skip to main content

Advertisement

Advertisement

New limits on car loans

SINGAPORE — Relying on a car loan to buy that dream ride will require more upfront cash payment as the most stringent ever financing restrictions imposed by the Monetary Authority of Singapore (MAS) kick in today. Car showrooms extended their opening hours last night, as they hoped to cash in on last minute buyers keen to avoid stricter loan financing rules.

SINGAPORE — Relying on a car loan to buy that dream ride will require more upfront cash payment as the most stringent ever financing restrictions imposed by the Monetary Authority of Singapore (MAS) kick in today. Car showrooms extended their opening hours last night, as they hoped to cash in on last minute buyers keen to avoid stricter loan financing rules.

In a statement yesterday, Singapore’s central bank said the tenures of motor vehicle loans will be capped at five years, with the maximum motor vehicle loan amount pegged to 50 or 60 per cent of the vehicle’s purchase price, depending on the Open Market Value. These financing restrictions, however, do not apply to commercial vehicles and motorcycles.

Some banks here had offered financing of up to 100 per cent of the purchase price for new cars, with tenures lasting up to 10 years.

The MAS said the financing restrictions on motor vehicle loans, which it previously had in place from February 1995 to January 2003, “are necessary to encourage financial prudence among buyers of motor vehicles”. Car loans used to be capped at 70 per cent of the purchase price, but this limit was lifted when the MAS liberalised vehicle financing in 2003.

“In this prolonged environment of very low interest rates, there is greater risk of buyers over-extending themselves on motor vehicles,” the MAS statement added.

Driven partly by soaring Certificate of Entitlement (COE) premiums, the amount of car loans has also ballooned. The monthly average loan rose by 7.46 per cent to S$88,517 last year, according to figures provided by the Credit Bureau of Singapore (CBS).

In 2011, the monthly average loan quantum was S$82,371. But the CBS said the monthly average delinquency rate for motor vehicle loans — defined as an instalment payment overdue by 30 days — fell from 2.76 per cent in 2011, to 2.53 per cent last year.

Describing yesterday’s MAS announcement as “drastic” and “a big surprise to the market”, Singapore Vehicle Traders Association’s Honorary Secretary, Mr Raymond Tang, felt it will now be much harder for people to purchase vehicles, “if they are not cash rich”, with the restriction’s impact more pronounced for budget-conscious buyers.

While Mr Tang was cautious of the restrictions’ impact on car prices overall, he noted that they will impact new car sales more, as used car prices have been stable over the years, even with the increases in COE premiums.

However, Mr Ron Lim, General Manager of Nissan agent Tan Chong Motor, felt sales of both used and new cars will be hit as “on average, maybe at least 40 per cent of buyers take up 60 per cent or more loan.”

Mr Lim felt COE premiums are likely to soften in the short-term but given the low COE supply, there will be a limit to how far the premiums will drop. “Long-term wise, people might have to migrate to the mass market brands again since absolute prices are much lower, meaning lesser cash outlay as compared with luxury brands, especially given the latter will also likely be impacted more by the new ARF (Additional Registration Fee scheme),” he said.

The Government yesterday announced changes to the ARF, the main car tax here, which imposes a heavier tax on luxury cars compared to economy cars.

Related topics

cars

Read more of the latest in

Advertisement

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.