Awareness of Applying Loan Online

Here, we will take a look at some of the main types of loan products available in Singapore and a few important points that you should keep in mind while going in for these loans:

Personal Loans

These are multi-purpose, non-collateralize borrowings. They are usually high-interest loans, higher than home or car loans but not as high as credit card borrowings.

A personal loan, used well and repaid on time, can actually help you build credit. If you are finding it difficult to get a personal loan from a mainstream bank, you may approach a moneylender. If borrowing from a moneylender check the Ministry of Law’s Registry of Moneylenders to see if your moneylender is authorized and also the Ministry’s informative “Guide to borrowing from moneylenders”.

Car Loans

Buying a car in Singapore can be an expensive affair; next only to a home loan. Consider this: in addition to the Open Market Value (OMV) of the car, you will have to pay a tiered Additional Registration Fee that may go up to 180% of the OMV. Of course, there is the all-important Certificate of Entitlement (CoE). And, the Goods and Services Tax, Excise Duty, Road Tax and Parking Fees add the icing to the cake!

Remember, also that loans for vehicles with an OMV of up to S$20,000 will be limited to 60% while loans for vehicles with an OMV of more than S$20,000 will be capped at 50%.

Given all the above, a second-hand car may remain a good option for you. They are cheaper, have lesser waiting time, no CoE bidding and small transfer fees. PARF (Preferential Additional Registration Fee) second-hand cars that are eligible for both PARF and CoE rebates are preferable to CoE cars which are eligible only for the CoE rebate.

Of course, you must do the basic checks: test drives, getting a mechanic to go over the car and even getting the car over to a trusted third party workshop for inspection.

Home Loans

The questions uppermost on a would-be home loan borrower’s mind usually are:

How much can I afford? This will depend upon two variables:

The Total Debt Servicing Ratio (TDSR) – This is the ratio of your income and liabilities. The Monetary Authority of Singapore (MAS) has capped TDSR on property loans to 60% to encourage prudent borrowing.

Loan-to-Value (LTV) ratio – This is the ratio of the amount of loan taken against the value of the property expressed in percentage terms. Since the introduction of the TDSR framework for property loans by the MAS, which came into effect from the 29^th of June 2013, the maximum Loan to Value (LTV) that can be borrowed is 90% depending upon the type of property.

Most banks have eligibility / repayment calculators on their websites. Use them to get an idea of how much you can afford and what your repayments will be like.

Check Your Home Loan Repayment Calculator in Citibank Singapore Website.

Do I go in for a new or an existing home?

This will depend upon the following points:

• Maximum tenor – The maximum tenor of home loans is restricted to: 30 years for HDB flats and ▪ 35 years for private properties
• Type of property / type of loan (if you are a first-time buyer with no outstanding home loan)

HDB Flat with a HDB loan – You can borrow up to 90% of the value of the home and use your CPF savings to pay off the 10% down payment provided the loan tenor is capped at 25 years.

HDB Flat with a bank loan – You can borrow up to 80% of the value of your home and use your CPF to pay 15% of the remaining and pay the other 5% in cash; loan tenors are longer at 30 years.

Furthermore, buyers of resale HDB flats have to fork out an additional COV (cash over value), which can amount to as much as $50,000, and has to be paid out to the seller in cash.

Private properties – Loans are available from banks; if the tenor does not exceed 30 years and the loan does not extend beyond 65 years, an LTV of up to 80% can be obtained; 5% of the remaining to be paid in cash and the remaining can be paid with CPF savings. If the loan tenor exceeds 30 years or if the loan extends beyond 65 years, only 60% LTV can be obtained.

What kind of a home loan should I take? There are two main types of home loans available:

Fixed Rate Home Loans – A fixed rate of interest is applied for the first few years (period may vary from bank to bank); thereafter the loan is converted to a floating rate. You may also be “locked” to the loan for the duration that it is fixed. Refinancing or making partial/full prepayments during the lock-in period could result in hefty penalties, of the total amount refinanced or prepaid.

A fixed rate will protect you from volatility but will also prevent you from taking advantage of rate drops.

Floating Rate Home Loans – These are usually tied to a reference interest rate (usually SIBOR or the Singapore Interbank Offered Rate, SOR or the Singapore Swap Offer Rate or the IBR or the Internal Board Rate which is fixed by your bank). Your monthly repayments may vary depending upon movements to the reference rate. There are floating rate products that come with / without lock-in periods.

Ideally you should choose between SIBOR-based and SOR-based loans, which are more transparent and not subject to the banks’ discretion.

Floating rate loans will always involve interest rate volatility. A way to mitigate this is to opt for a longer tenor SIBOR or SOR. For example, a 12-month SIBOR or SOR rates is revised every 12 months, so you get to enjoy fixed rate for a year!

We’ve already discussed briefly about overview of Home Loan.

Business Loans

There are various types of business loans available for you, if you have a business. These loans could help you to expand and improve, meet cash-flow requirements and purchase necessary equipment / supplies. These include Working Capital Loans, Factoring Loans, Short-term Loans, Overdraft and Hire Purchase Loans.

Other avenues for raising funds include Equity Financing and Collateralize Loans. If you have a start-up business, you may need to rely on your own personal credit sources. There are also a few micro finance options available in Singapore:

A collaboration between POSB Social Enterprise Hub Ltd (SE Hub Ltd, a social enterprise that seeks to invest in and incubate social enterprises) and the Singapore Totalisator Board (“Tote Board”), the MicroCredit Business Scheme (MCBS) is designed to provide those earning less than $30,000 a year the chance to take unsecured loans to start or expand their small businesses including food stalls, retail shops or hair salons. The loans can be from $3,000 to $50,000 with interest rates as low as 8 percent a year. MCBS officials will guide the loan applicants on business skills.

SPRING Singapore, an agency under the Ministry of Trade and Industry, offers a Micro Loan Programme of up to S$100,000 for daily operations or for automating and upgrading factory and equipment. These are available to companies registered and operating in Singapore with at least 30% local shareholding and with less than or equal to 10 employees or annual sales of less than or equal to S$1million. Interest rate is generally a minimum of 5.5% for loan tenors of 4 years and below.

Car Loan Calculators

The complexities surrounding the registration, purchase and financing of vehicles in Singapore are many; Certificate of Entitlement (CoE), Additional Registration Fee (ARF), Preferential Additional Registration Fee (PARF), Open Market Value (OMV), Loan to Value, Rule of 78, Electronic Road Pricing (ERP), hire purchase, flat or applied interest rate and effective interest rate are just some of the terms you need to start with before you grapple with the laws and processes put in place by the Land Transport Authority (LTA) and the Monetary Authority of Singapore (MAS).

By now you would have already started feeling a little light-headed and searching desperately around for help. Car loan calculators, though they cannot provide you with complete guidance, can help you navigate around some crucial pieces of statistical / financial information. Lets take a look at the various types of calculators available and how they can help you:

Car Financing Calculator – Enter the purchase price of the car, any downpayments made and the financing period in years and you are returned the loan amount, the interest rate and the monthly installment amount. The Car Loan Calculator at One Motoring’s website (onemotoring.com.sg), the LTA’s portal is a great place to start with.

Car Loan Affordability Calculator – These help you determine your car loan eligibility. You will need to enter your income and financial obligation details. A few sites, Citibank Singapore being one, provide both affordability and monthly income calculators at one place, making it easy for you to do your calculations.

Car Financing Settlement Calculator – OCBC Bank provides a calculator that will help calculate the estimated settlement amount for your current car financing. Enter the original financed amount, financing period in years and the interest rate and select the payment type; payment types are Arrear (if you paid your first installment after collecting the car) and Advance (if you paid your first installment before collecting the car). You will get an estimation of your settlement amount at the end of each year.

Car Depreciation Calculator – Enter the car’s price, its OMV value, today’s date and the car’s registration date; this calculator will display the CoE expiry date (10 years from the date of registration), the time left for CoE expiry in both months and years, the PARF value as on the day of CoE expiry, the depreciation per year and a list of depreciation to price scenarios.

Car-culator– This new kid on the block, though not fully evolved, can help you make a car buying decision based on the cost of ownership rather than just the purchase price. Lets say you want to compare two different cars with a very similar list price but with a substantially different set of OMV, CoE and insurance costs. How do you find out which car is actually more expensive to own for X years till you sell or scrap it? Car-culator which is available as an Android app and also (in a more advanced form) in a web/mobile edition will help you calculate it.

Car Loan – New Car vs Used Car

In Singapore car loans are available for buying new or used cars. This article will present a few points that can help you understand some of the basic terms and processes involved:

Determine your need – Buying a car can be an expensive relationship. If you are buying a car simply to get around, try adding up the cost of each journey you and your family members make every day and compare this to the cost of owning and running a car.

Eligibility – Loan applicant must be a Singapore citizen or permanent resident above 21 years. Foreigners (if eligible) must have an employment pass with at least six months validity. Income requirements vary from bank to bank with foreigners being generally required to have a higher income eligibility.

Regulatory restrictions – Following the financial restrictions imposed by the Monetary Authority of Singapore (MAS) effective 26-Feb-2013, loans for a car with an Open Market Value (OMV) of up to $20,000 will be limited to 60 percent of the purchase price and for those more than $20,000, will be capped at 50 percent. So you will have to shell out 40%-50% of the purchase price on your own. This is applicable for both new and used cards. The maximum loan tenor has also been capped at 5 years; for used cars, age of car plus period of financing must not exceed 10 years.

Here are a few benefits of getting an used car vis-à-vis a new car:

Cheap – Used cars can be substantially cheaper than a new car depending on the model and the miles on board. And, do yourself a favour and look for a used car without a loan attached.

Minimal waiting – Unlike new cars, you do not have to CoE bid for a used car and as we all know, CoE bidding can get… rather cumbersome. With a used car, the wait is minimal. Once the papers are signed, the transfer must take place within 7 days. Also, with depreciation kicking in, insurance costs are lower for used cars in comparison to their new counterparts.

PARF or a CoE car? A PARF car hasn’t been de-registered before its 10-year depreciation period has ended. This makes it eligible for both the COE and PARF Rebate, which is ranges from 50% – 75% of the Additional Registration Fee (ARF) paid on the vehicle.

A COE car, on the other hand,  is not eligible for the PARF Rebate because the owner chose to pay the Quota Premium for 5 or 10 more years more instead of de-registering the vehicle. This means that upon de-registration, you’ll only receive the COE Rebate. Moreover with a CoE car you pay an additional road tax surcharge.

You may decide after going through the above that a PARF car is a better bet. They are, in many ways, better, but if you have a constricted budget the older CoE car may just win out.

Importing used cars – Only used cars that are less than 3 years old can be imported and registered for use in Singapore. A used car surcharge of S$10,000 will be payable.

Conversely, here are a few cons to getting an used car:

Condition – A new car is the best possible car that you can get; an used car, even if serviced well, may not be able to replicate the performance and comfort of a new car.

Tenor – You can avail the maximum financing tenor of 5 years on new cars by default; for used cars, age of car plus period of financing must not exceed 10 years. So, depending upon the age of the used car you may not be able to avail the maximum financing tenor possible.

Transfer – If you are the buyer, you (along with the current registered owner) must complete a transfer of vehicle application form and submit it together with a list of required documents depending upon whether you submit it at the LTA office or at an Electronic Service Agents’ premises. You will also be required to pay a transfer fee. This is not required when you are buying a new car.

5 Steps to Avoid Penalty for Auto Loans

1. Calculate your repayment ability

With the Monetary Authority of Singapore imposing caps on auto loan financing (60% for vehicles priced up to $20,000 and 50% for vehicles priced more) and tenor (5 years) auto loans have become dearer as banks try to recoup their interest losses. So, check whether you can meet the installments for the loan period before you go in for that loan.

Personal loans are a favourite tool for those who wish to make up for the deficit in their auto loan. But personal loans being unsecured by nature charge a higher interest rate and may adversely affect your repayment ability. So, check your repayment capability and do not go in for additional loan sources for funding your auto purchase.

2. Penalties under Hire Purchase Law

If the car price (excluding CoE) is greater than or equal to $55,000 your car loan is governed by the Hire Purchase Act. Under the Rule of 78 early redemption entitles the borrower to a rebate on interest paid. However, banks are allowed to charge 20% of the rebate so calculated as penalty. Check whether this is truly worthwhile for you. Otherwise stick to the stipulated loan tenor while placing any surplus cash in a good investment avenue.

3. Penalties under Common Law

If the car price (excluding CoE) is greater than $55,000 your car loan is governed under Common Law. If your loan was taken up on a flat rate basis, the Rule of 78 rebate will usually apply. In addition there may be a fee/penalty for early redemption of car to cover some of the costs which the bank will incur if the loan is paid early. Calculate these costs and go in for an early redemption only if it is really worthwhile for you. Otherwise stick to the stipulated loan tenor while placing any surplus cash in a good investment avenue.

4. Non-Payment vs Deferment

Sometimes due to a temporary squeeze on cash flows you may not be able to meet your payments for a month or two. If that is the case, try to negotiate with the bank or loan provider for a deferment of the loan installment. If your provider is convinced they may agree to a deferment for a limited period and even if they impose certain charges, chances are that they may not label these charges as penalties (these charges may most probably not amount to as much as normally imposed penalties) and your credit scores may also not be affected.

5. Restrict loan tenor

Most Singaporeans try to dispose off their car before the end of the loan tenor. This is where penalties under Hire Purchase and Common Law come in. So, try not to sell off your car before your loan tenor ends or if you plan to sell off your car, for instance, in three years, take a loan tenor accordingly (provided you’ve calculated your repayment ability for this reduced term).

Car Loans in Singapore

Car Loans

In Singapore, car loans are available for buying both used and new cars.

This quick guide can hopefully help you get started with your car loan:

Compute your financial “car loan” viability

•  Cost of the Certificate of Entitlement (COE): Every car must be accompanied by a COE, which needs to be bid for in an open auction system. In recent times, COEs have turned out to be quite expensive, going even up to $90,000.

• Regulatory change: The Monetary Authority of Singapore has limited vehicle loans to 60% for vehicles priced up to $20,000 and to 50% for vehicles priced more. The loan tenor will also be limited to a maximum of 5 years (the physically disabled and their caregivers will be exempt from these provisions for one year).

The change has resulted in lenders facing a substantial drop in interest earnings, which they are trying to recoup with higher interest rates. This has made car loans more expensive.

• Taxes and other charges: Figure out the expenses that you may incur via Goods & Services Tax, Registration Fee, Additional Registration Fee, Excise Duty, insurance, petrol, maintenance, Road Tax and ERP (Electronic Road Pricing).

Once you aggregate all the above and calculate your estimated monthly pay-out, you will be in a position to determine if you can go in for a car loan.

Shop for a loan provider

Try and go for an established institution that gets you the lowest possible interest rate. Check both the fixed interest rate and the effective interest rate.

In addition to getting the lowest possible interest rate, check to see if your loan provider will also help out with getting the most competitively priced insurance quote and with completion of transfer of vehicle ownership and other paperwork and formalities.

Be “document” prepared

Make sure you have your employment passes, salary slips, certificate of employment, credit report, passport and other documents required by the lender prepared beforehand. If you are a non-Singaporean, you will need to find a local guarantor (who is a citizen or a permanent resident).

 

 

Are you still missing out?

If you are falling short, you may consider these tips:

•  Personal Loan: Consider a personal loan for the down payment (if that’s where you are falling short) and a car loan for the rest. However, as car loans have a DSR (Debt Service Ratio) of about 30%, you should be careful that the car and personal loans together do not take you beyond the maximum DSR requirement.

•  Balloon Loan: These loans are structured to reduce monthly payments by shifting a significant portion of your loan to one final payment. A balloon loan works on the assumption that your financial capability will improve within the next few years, enabling you to pay off the large final installment.