There are a few critical differences between borrowing from a bank & your auto dealer. These include interest rates and the availability of balloon payments.
Car loan rates in Singapore can seem more expensive than other kinds of loans. This is because they apply a flat rate method. A flat rate is where the interest rate is fixed and based on the original loan amount.
The interest rates offered by car dealers are generally above bank rates from 4 to 4.8% per annum. In addition, the commission of the car seller can also further increase car dealers’ interest rates.
If, however, your car dealer does not give you a car credit, you have the choice of getting the one with the most reasonable rate from the bank. Bank rates can range from 1.88% – 2.7% annually. Some banks may even give an interest rate of 3%, but this is normal for used cars.
Both banks & auto dealers offer loan tenures that range from 1 – 7 years. Both may charge early refund fees if you decide to make a future early reimbursement.
Here’s a table of interest amount between banks & auto dealers:
||S$1,189 per month
||S$1,336 per month
|Total interest paid
Based on this instance, applying for a car loan from an auto dealer may cost you S$12,348 more at the end of the 7-year loan tenure.
Convenience & Loan Options
You can choose the dealer’s car loan more comfortably, as you can buy the car at the same place and deal with the funding. In addition, funding from the auto dealer can provide you with the possibility to negotiate the sale price.
On the other hand, you will have to apply via the bank’s website or physically to the office if you wish to take out a car loan from the bank.
One advantage of borrowing from a bank is that you have different lenders and credit options to choose from. This allows you to compare your choices to see which bank provides you with the best rates & terms.
Whether you are funding a new or a pre-owned car, both dealers & banks give car loans for both types of vehicles.
Availability Of Balloon Payments
Car dealers also give balloon payment schemes. But do you know what a balloon payment scheme is?
The payment scheme for ballons refers to a type of loan with a significant amount owing at the end of the loan term. For Singapore’s car funding, a balloon payment scheme is a loan scheme where a minimum PARF rebate is not included in the loan for cars. The monthly refunds are lowered.
To understand PARF, you will first have to understand the Additional Registration Fee (ARF). The ARF is based on your vehicle’s Open Market Value (OMV).
The following table shows how your vehicle ARF is calculated.
|Next S$30,000(i.e. S$20,001 to S$50,000)
For example, if the car has an OMV of S$75,000:
||100% x S$20,000 = S$20,000
||140% x S$30,000 = S$42,000
||180% x S$25,000 = S$45,000
The total ARF will be $107,000.
The PARF rebate is then counted based on the car’s age when you deregister it. Even if the vehicle was registered locally or overseas, the car’s age depends on its date of registration. The table below shows the rebates turned on the date when who deregistered the vehicle.
|Age at Deregistration
|Not exceeding 5 years
||75% of ARF paid
|Above 5 but not exceeding 6 years
||70% of ARF paid
|Above 6 but not exceeding 7 years
||65% of ARF paid
|Above 7 but not exceeding 8 years
||60% of ARF paid
|Above 8 but not exceeding 9 years
||55% of ARF paid
|Above 9 but not exceeding 10 years
||50% of ARF paid
|Above 10 years
Credit History Requirements
It’s good to take a car loan from a car dealer in that you may have a greater chance of getting your loan accepted. Auto dealers are usually more lenient in approving loans & do not focus much on credit history.
On the other hand, banks need a good credit history to get a loan approved. If you have a bad credit record, you may want to think about your car dealer’s borrowing or even a private financial institution.