What Questions To Ask About A Car Loan In Singapore?

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Written By Loanbuddy Singapore
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What Questions To Ask About A Car Loan In Singapore?

If selecting a perfect car is an important thing, so does getting a car loan. There are so many loan options available in the market for every financial need of Singaporeans. Thus, a borrower needs to do his/her own homework before finding a suitable lender. If you make your decision without considering the cost and benefits of the loan, you will probably end up paying extra money.

Buying a car is a necessity for many but it is expensive. If you are short on cash, you may need to take out money from lenders to finance your car purchase. But you have to figure out what are your financial limits and how much amount you actually need. There are other questions as well to consider while exploring car loan options in Singapore. Make sure you ask all of them at the right time and from a qualified loan consultant.

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A Guide for Foreigners to buy a car in Singapore

What are the questions a borrower must ask before getting a car loan in Singapore?

You have to ask questions and get clarity to get the best car loan deal. LoanBuddy lists 6 questions to ask while getting a car loan in Singapore. Keep reading to know what they stand for.

Q.1.How does my credit score affect the car loan?

If you think you can get a car loan with a bad credit score, you are thinking wrong. Let us clear this to you. No bank or financial institution disburses any loan to an applicant who has a high risk of defaulting on the loan repayments. Why? That’s because they judge you on the basis of your credit report and if any red signs are there. Although lenders’ criteria to give loans may vary from each other as each of them has its own sets of standards to run a credit check on the applicant, the credit report is largely used by them to see whether you can pay off the debt without any delay.

The credit report indicates your payment history with regard to your credits in the past. It shows how much debt you currently owe, how much you had obtained in the past, and whether or not you made any defaults on it.

Credit score plays a significant role while determining your loan terms and interest rate. The higher your credit score, the lower your interest rate will be, and vice versa. If you have a low credit score or no credit score (if you are applying for a loan for the very first time), you should try looking for ways how you can improve it. And even if you have a satisfactory credit score, it’s better to do extra work to further reduce your interest rate and keep the overall cost of the loan as low as possible.

Q.2. Am I earning enough to make repayments on time?

When you know how much money you have or are earning monthly, you can analyze how much loan you should apply for. If you cannot afford high monthly payments from a low salary, you shouldn’t apply for a big amount in the first place. It can damage your credit score for many years if you apply for an inappropriate loan amount and fail to pay the installments on time.

A usual rule is that if you cannot afford to pay off the installments from your monthly salary, you cannot afford the car with a car loan. Do a proper calculation as to whether the kind of car you are buying fits your budget or not. We advise you to take a smaller amount of loan or increase your income sources to meet the repayment needs. Moreover, you can delay your car purchase if you don’t have money at all till the time you sufficiently have it.

Q.3. What kind of down payment will suit me?

The down payment is the money you need to first pay without draining your emergency funds. 20% is an ideal number when applying for a car loan. If your trade-in has enough value, it can also serve the down payment. If not, a sizable portion of it can also serve your down payment on a car purchase.

Q.4. What will be the interest rate and loan terms on my loan?

As said earlier, the interest rates highly vary depending on what your credit score is. Other factors like the age of the car being financed, loan tenure, and other risk factors also contribute to determining the interest rate. The APR (Annual Percentage Rate) is generally lower than the actual interest rate. Reason being the other fees it includes. And for second-hand cars, the APR and interest rates are usually very high.

Interest rates on car loans keep on varying depending on loan terms. The average loan term of a car loan in Singapore falls between two to seven years. You must note that a car loan with a lower interest rate will definitely have a longer loan term. Whereas, a loan with a shorter duration comes at a high-interest rate in Singapore.

Q.5. Is it good to buy a used car instead of a new car?

When you buy a new car, it can make big holes in your pocket. This happens when you either don’t qualify for a loan or end up with a high-cost loan. Along with this, new cars depreciate faster in their initial years of use. In some cases, the depreciation rate could go up to 30% or 40%. What does it interpret?

It means your car is going to be less valued than what you owe to the lender in case you have opted for a long-term car loan. To keep in mind these scenarios, you can think about owning a used car. A used car is often less expensive meaning your loan will also be less costly. However, you should always take a test drive before you buy a used car because you don’t know what you are getting into. The money you are saving now may be used later to apply to the heavy repairs hence make sure you are testifying about the car before making a decision.

Q.6. Are there any penalties if I pay off my loan before the end of the loan duration?

In Singapore, some lenders may charge you zero money on paying off the loan before the tenure ends. Whereas, some may charge you with an early repayment fee to protect themselves from the loss of their anticipated profits. Make sure you read the terms and conditions carefully before applying for a car loan. If you miss any important detail, you may have to pay the cost of it later. All in all, you should look for options that don’t charge any fee for early repayment of the loan.

What are the things to consider while comparing car loan options?

It is indeed beneficial to shop around different loan options before applying for it in real. You should follow these below tips while comparing different loan products of a car loan:

  • Take an assessment– It’s not a guarantee that you will get approval from banks even if you qualify for the loan. This can happen due to minor mistakes hence you should take a prequalification test before applying to a bank for real. For this, you can take an assessment test on your loan application. LoanBuddy conducts a free assessment test on your application and finds out the chances of disapproval from banks, if any.
  • Don’t compare apples to oranges– The interest rate you are seeking will highly depend on your credit score, loan terms, income, and the type of car you are planning to buy. You must make sure you are comparing interest rates of similar loan terms and loan amounts.
  • Check if there is any restriction– Some lenders in Singapore will issue a car loan if you are purchasing your car from their partnered car dealers only. They won’t finance your car if you are buying the car from a private seller. Also, they may disqualify the loan if the car is a specific make or has high mileage. Make sure there are no such restrictions on the car loan.
  • Do not choose their dealership car financing– As said in the above point, lenders will charge a lower interest rate if you opt for their partnered car dealers. This may look tempting at first but you should not apply to a lender who is charging high interest on car purchases from other than their preferred car dealers.
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You can click here to check the Car Loans Interest Rates for 2024

What are the documents needed while applying for a car loan in Singapore?

You must carry the following details and documents while applying for a car loan:

  • Driving license or any other ID issued by the government of Singapore.
  • Bank statements and latest pay slips
  • Residential proof such as a utility bill, mortgage document, or any other similar document indicating your full name and address of residence
  • All information about the car- model, make, VIN number, car price
  • Mode of paying down payment
  • Car registration number if you are trading
  • Insurance documents

Conclusion

While obtaining a car loan, you will want to know the true cost and benefit involved in the monthly payments. It pays when you shop around different options. If you think you can’t do it on your own, no worries! Just contact us. We conduct necessary comparisons among different loan options to give advice on the most appropriate one.

Also read Capital Requirements To Start A Business In Singapore.

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