Man driving a used car

Things to know about your car loan

Thinking of purchasing a car? Many times, buyers spend a long time deliberating on the ‘right’ car, while not giving much thought to their car loan. Fret not, we’re here to give a crash course on your car loan to make sure you don’t end up having to pay more than you ought to. So what should you consider when applying for a car loan?

How much can I borrow?

First, work out your sums to ensure that you have sufficient cash on hand for the down payment. If you started a savings fund for your dream car, this would be the perfect time to give yourself a pat on the back. Then, assess the loan amount that you would like to apply for. This will in turn determine your monthly instalments, which should be a number you’re comfortable paying monthly.

The maximum amount you can borrow is dependent on several factors.

The first is the car’s Open Market Valuation (OMV). Based on current regulations, you are entitled to a loan of up to 70% of the car purchase price if the OMV is lower than or equal to S$20,000. If the OMV is higher than $20,000, you’ll only be able to take a loan of up to 60% of the car purchase price.

Open Market Value (OMV) Maximum finance amount
≤S$20,000 70% of the purchase price or valuation price, whichever is lower
≥S$20,000 60% of the purchase price or valuation price, whichever is lower

Other considerations that will affect how much you can borrow are your monthly income and current financial commitments such as your housing loan, personal loan, credit cards, or another car loan. These, along with indicators like your repayment habits, in turn add to your credit score. As the math goes, a better credit score will entitle you to a higher loan amount.

How to improve your credit score

What is the maximum loan period?

Check online car marketplaces for good deals

You can choose a loan period of up to 7 years.

That being said, it is important to note that for used cars, your maximum loan period is determined by the registration date of the car. DBS car loans are only available for cars less than 10 years old, calculated from the original date of registration. For example, if you intend to purchase a used car that was registered in 2011 (6 years old), the maximum loan period for that car is 4 years.

How do I get the lowest interest rates for my car loan?

While most car dealers offer in-house loan packages, you can get a lower car loan interest rate by going direct to a bank. For example, when you apply for a loan application online directly with DBS, you’ll be able to enjoy interest rates as low as 2.28% (EIR 4.29% for a 7-year loan), which works out to be a significant chunk of savings.

Let’s take a look at how much you could save by applying for a DBS car loan. Say you earn a gross monthly income of S$3,500, with monthly financial commitments of about S$1,000:

  DBS Online Car Loan Typical Used Car Loan
Interest rate 2.28% p.a. 2.98% p.a.
Loan period 7 years 7 years
Loan amount $70,000 $70,000
Interest paid $11,172 $14,602
Interest saved $3,430  

In this scenario, you have just saved S$3,430.

For a quick calculation of your car budget, use our car budget calculator to work out your sums (and savings).

What do I need to apply?

Getting ready to collect your new car

All ready for your dream car? Not quite yet. Before you start your application, ensure that you have these details on hand:

  • Vehicle Sales Agreement (if applicable)
  • Employment details including company name, designation, length of service and monthly gross income
  • Details of existing financial commitments e.g. housing loan, personal loan, credit cards
  • Income documentation such as salary credited to your DBS/POSB account, computerised payslip, or IRAS Notice of Assessment. If your length of employment is less than 1 year, your latest CPF Contribution history statement would be required

Do also note that you have to be above 21 years of age. For Singapore Citizens and Permanent Residents, you will need to have a monthly income of at least S$2,000 (S$4,000 for foreigners).

And that’s it. We wish you a smoother ride with these loan tips.

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