Taking advantage of loopholes in new financing restrictions

On 25 February, the Monetary Authority of Singapore (MAS) announced that there will be capped motor vehicle loans at 50 or 60 percent of the purchase price, depending on the cost price of the motor vehicle purchased. In addition, MAS shortened the repayment period of the loan to five years and also restricted financing of the downpayment for buyers.

The restrictions, however, do not apply to finance or credit companies that are not regulated by the MAS. As a result, some of these companies have taken advantage of loopholes in the system - by offering up to a full loan for prospective car buyers.

While prospective car buyers could also theoretically obtain loans from licensed moneylenders, it is understood that the gap left by the banks could not be fully filled by them, as under existing regulations for licensed moneylenders, they can only offer loan amounts up to four times a borrower's salary. The consequences of the borrower defaulting are also unfavourable.

On the other hand, prospective car buyers could also finance their outlays via unlicensed moneylenders, with this industry possibly seeing an increase in business from prospective car buyers looking for extra cash to foot downpayments.

That said, it is understood that the authorities are well aware of the loopholes and will work with relevant agencies to extend the restrictions on motor vehicle loans to licensed as well as unlicensed moneylenders. This is to ensure that the regulations are effective in light of the changes.