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Registering a company continues to allow individuals to legally obtain a 90% car loan, although current loan curbs require at least a 40% cash down payment.

05 Aug 2019 | Local News : Singapore

A Ferrari is not all that out of reach because of a loophole in car loan regulations. All anyone has to do is to register a company and this will allow him to legally obtain a 90% car loan. Current loan curbs require at least a 40% cash down payment on the purchase price of a car with an Open Market Value (OMV) of more than $20,000.

Dealers have been found advising buyers to register a company in order to secure a loan of 90% of the purchase price of a car
The Sunday Times found that some car dealers are openly advising buyers to register a company or a sole proprietorship to secure a loan of 90% of the purchase price.

Last Friday, The Sunday Times visited Motorway, one of the largest dealers of pre-owned supercars in Lower Delta Road. When this reporter showed an interest in a Ferrari California 4.3 (A) sports car, priced at $298,000 and with its Certificate Of Entitlement (COE) renewed till February 2029, the salesman offered a 90% loan option.

This meant that only $30,000 was required for the cash down payment instead of $119,200.

"Do you have a company?" asked the salesman. When the response was negative, he said, "Can you register a company? So we can loan up to 90% to you."

He gave a breakdown of the cost. For a loan of $268,000 - about 90% of the price - at an annual interest rate of 3.98% over a maximum loan tenure of seven years, the monthly instalment worked out to just $4,080, he said. The offer was available only from Motorway Credit, he added, and not from banks or other finance firms.

Loans for individuals wanting a supercar are currently capped at 60% of the purchase price
The helpful salesman even suggested a company name - Joyce Leasing - for this reporter and said it was compulsory to include "renting and operating of private cars without operator" as the business activity when registering the firm with the Accounting and Corporate Regulatory Authority.

Without this, it would not be possible to secure a 90% loan, he said. Under Monetary Authority of Singapore (MAS) regulations, loans for individuals wanting a supercar are capped at 60%. The salesman gave the assurance that the in-house loan process would be easy and convenient.

Such schemes have become increasingly popular with buyers who cannot afford to come up with high cash down payments, industry watchers told The Sunday Times. Such buyers generally go for cars that are above seven years old or cars with renewed COEs.

The Sunday Times obtained records of at least two firms that were registered for the purpose of buying supercars. When contacted, the car owners denied setting up the businesses solely for the purpose of securing 90% loans.

The Sunday Times spoke to four car dealers who have doled out 90% loans to buyers. They agreed to speak on the condition of anonymity so as not to attract "unnecessary attention from the authorities". They said the high cash down payment rule led to sales plunging by more than 80%. The loan curbs were introduced in 2013.

These schemes have become increasingly popular with buyers who cannot afford to come up with high cash down payments
"The scheme is definitely legit. I lend to a company and it is not against the law to loan 90% of the car price to a company. I did not lend to an individual," said one dealer, who felt that most buyers would be able to afford the cars even though the monthly instalments are high.

Another dealer said, "Some finance companies ask for the payslips, but many would not bother. If you can't pay, I'd simply tow the car back and sue you for bankruptcy. If five out of 10 cases continue to service their loans, I would have made money from the high in-house interest rate, which is twice the amount that the banks offer.

"Such schemes are good for car dealers to help us clear our stocks. We will usually sell 10% to 30% higher than the market price for higher loans." A check of the dealer's company records showed that half of his potential buyers required loan amounts of up to 80 to 90% of the purchase price.

Mr. Eddie Loo, 56, President of the Singapore Vehicle Traders Association and Founder of CarTimes Group, said he was not aware of such schemes. Dismissing them as desperate sales, he agreed that such schemes would not breach MAS regulations. But he added that it would be risky for the finance firms as buyers could default on their loan instalments.

Acknowledging that the car market was down and dealers were struggling to stay afloat, Mr. Loo said, "If you look at the trend, COE is still at a record low for Category A (up to 1600cc) cars. That reflects the economy. Even the bread and butter (cars) also hardly move."

Most of the 90% loan purchases were for luxury cars like BMWs and Mercedes, rather than supercar brands like Ferraris
An Insurance Consultant of 20 years said he had come across at least 200 cases of supercars and luxury sports cars bought through such schemes for the past three years. The consultant, who spoke on the condition of anonymity, said the telltale signs were obvious as it would be unbelievable for a leasing business to own only one car. Also, it would be "ridiculous" to chauffeur someone with a two-door sports car, he said.

"They are lying that they will be renting out their cars. In genuine cases, finance companies would require their insurance to cover rental activities," he said.

When contacted, Motorway Group Chief Executive Officer Michael Lim said, "After the loan curbs were introduced, a lot of people registered companies to get 90% loans. But you will still need to have a strong income or a guarantor to get the loans."

Mr. Lim said most of these purchases were for luxury cars like BMWs and Mercedes, not exotic ones like Ferraris, as people who buy supercars would usually have the means to buy them outright.

The Land Transport Authority had on its record 7,933 Ferraris, Lamborghinis, Porsches, Maseratis, McLarens and Aston Martins last year, almost a 10% rise from 7,292 in 2017. Dealers said they are seeing a growing number of young executives buying such cars.

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