Different car loan packages and what they mean to you

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Singapore is one of the most expensive countries in the world to own a car. It comes to no surprise that over 95% of the 1000 deals that we have successfully transacted requires a loan. In this article, Otua Auto explores and breaks down the different types of loan packages that are available to you as a consumer.

Bank loans:
At otua.sg, we almost always encourage our car buyers to apply for a bank loan compared to the other options. The reason is simple – Bank loans are the cheapest loan option available to buyers, so you can get the best price for your car. They are also the easiest to understand, without all the convoluted terms and conditions that are often overlooked and
very much unfair to the average consumer.
The only disadvantage to bank loans is that they tend to be strict with their applications as they have to adhere strictly to any MAS guidelines that are imposed on them.


Pros:

  • Cheapest financing option
  • Loan applications tend to be faster
  • Easy to understand
  • Easy and fast loan settlement

Cons:

  • Strict requirements


In-house financing:
Despite their name, in-house financing actually refers to 3rd party finance
companies/institutions. These loans tend to have much higher interest rates that start from 3.XX% and upwards of 5%. They are often preferred for their lenient application process. One of the core benefits of in-house financing is that it does not reflect on your total debt servicing ratios. So for car buyers who are looking to purchase a house in the near future or are looking to apply for business loans, in-house financing could be the ideal choice. Do take note that the terms and conditions for in-house financing are often harsh and brutal. With expensive early settlement fees and charges to exorbitant default penalties, it should be well noted that your payments are prompt and timely to avoid a painful bill at the end of the month.

Pros:

  • More flexibility in their loan applications
  • Does not affect your total debt servicing ratios


Cons:

  • Loan processing fees that starts from $200 to upwards of $1000
  • Much higher interest rates
  • Some of the finance companies are extremely trigger-happy with tows when you are late on your payments
  • Expensive fees and penalties


Lease to own schemes:
Gained popularity recently. There are probably a 100 different variations out there, but the basic concepts stay the same. The actual ownership of the vehicle actually belongs to the financing company. Some of the LTO schemes include free servicing, road tax and insurance. Generally, this is seen as a rental service provided by the finance company to you, and after
a predetermined number of years, the vehicle ownership is then effectively transferred to you. These types of loans often come with attractive marketing headers like “Zero dollar drive away” or “Zero dollar down payment”. However, the terms and conditions are almost always extremely harsh and you can expect to drive the car till the end of its COE or you may suffer heavy penalties that can be upwards of 50% of the original car purchase price.

Pros:

  • Fuss free “car ownership”, since most of the LTO schemes provide free car servicing etc.
  • Most of them provide 100% financing, so you can literally drive away $0

Cons:

  • Insanely harsh penalties and settlement charges
  • You do not really own the car, and be prepared to drive the car until its end of COE to avoid heavy charges
  • If you should decide to “sell” the car early, the process is often convoluted and difficult
  • Expensive monthly installments, since you are really renting the car instead


Balloon Scheme:
Relatively popular in the early turn of the millennium, the Balloon scheme financing is basically a loan on the vehicle’s purchase price less its Preferential Additional Registration Fee (PARF). Again, there are many variations of this scheme, but in general, they all result in a lower monthly payment for the car. However, your PARF still has to be paid eventually
(usually at the end of the loan period).

The balloon scheme is by far the most complicated loan option available for consumers. It has since lost popularity due to it’s much higher interest rates and also most finance companies prefer LTO schemes which are of lower risk for them. Since the balloon scheme is pretty much the “ancestor” of the lease to own scheme, they have many similar pros and cons.
Pros

  • Much much lower monthly installment compared to all the other schemes
  • Some balloon schemes allow for lower down payment
  • Lower down payment often translates to better or fancier cars
    Cons
  • Heavy and expensive penalties and fees (especially early settlement)
  • Be prepared to drive the car till the end of the loan tenure
  • You lose the PARF rebate for your car
  • Extremely detrimental if you “total loss” your car or if your car has irreparable damage

When it comes to finding the right loan packages for your car purchase, there’s no 1 size fit all solution to it. Proper financial planning is crucial. It’s always best to get expert advice to help you make an informed decision. If you need help deciding on which loan package fits you best.|

Feel free to reach out to the client advisors at Otua Auto. As a premiere car
dealership, we offer a full range of financing options and have tie-ups with various lenders so you can always be sure that we are offering the best financing options to you.

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