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Whether you're in the market for a used or a brand new car, these five banks and financial institutions have ways of getting you one step closer to owning your favourite one.
Category: Car Buying Advice
When buying a car, used or new, dealers by and large, give you just about two to three banks or Financial Institutions (FIs) to choose your loan from. Ultimately, however, the dealer usually ends up proposing the bank, which gives them the highest commission percentages. With the below knowledge, you can make a better informed decision on which bank or FI's loan best suits your needs and request specifically for it.
Here are five of the banks and FIs available at most car dealers: DBS, Hong Leong Finance (Hong Leong), Maybank, Tokyo Century Leasing (TCL) and United Overseas Bank (UOB). The loan rates below are listed according to bank sources at time of writing.
Car loan interest rates from six major banks
|New Cars||Used Cars||Cars with Renewed COE (Private)|
|Sgcarmart Financial Services||2.98%||2.98%||3.48%|
|Hong Leong Finance||2.78%||2.78%||2.88%|
|Tokyo Century Leasing||2.78%||2.98%||3.75%|
|United Overseas Bank||2.78%||2.78%||3.18%|
Balloon Scheme availability and Early Settlement Penalties
|'Balloon Scheme' Loan||Early Settlement Penalty**|
|OCBC||1% of the financed amount throughout the tenure.|
|Sgcarmart Financial Services||2% of finance amount + 20% of interest rebate.|
|DBS||1% of the financed amount throughout the tenure.|
|Hong Leong Finance||1.5% on the outstanding loan amount within 18 months, no penalty after 18 months.|
|Maybank||1% of the financed amount throughout the tenure.|
|United Overseas Bank||1% of the outstanding loan throughout the tenure.|
|Tokyo Century Leasing||1.5% on the outstanding loan amount throughout the tenure, additional handling fee will be imposed if terminated within 6 months|
Early settlement and the Rule of 78
Car loans cannot be transferred from one party to another; when you sell your car, you will need to fully pay off the loan before the ownership transfer. Therefore, if you plan to sell your car before your loan matures, you should study the early settlement penalties charged by the banks or FIs before deciding on which to go for. Early settlement penalties are usually charged as a percentage of the loan amount and are used to cover administrative costs and commission already paid when a loan is repaid early.
All the banks and FIs will also charge a fee of '20% of unpaid interest based on rule of 78' on top of the early settlement penalties. The Rule of 78 is a method of allocating the interest charge on a loan across its payment periods. More interest charge is allocated to earlier payments compared to the later ones. When you choose to pay off your loan early, the unpaid interest will be computed based on the Rule of 78, and a fee of 20% of the unpaid interest will be levied on top of the early settlement penalties.
What's a balloon scheme?
To put it simply, a balloon scheme is a loan scheme whereby you are not required to pay instalments on the minimum PARF rebate portion of your car loan. For example, if your car loan is $50,000 and your car's minimum PARF is $10,000, you only need to pay instalments based on $40,000.
The instalments will thus be lower as compared to a conventional car loan, but the catch is that the interest rates are higher. And because you are not paying for the minimum PARF rebate portion, that amount will go to the bank at the end of your car's Certificate of Entitlement (COE) lifespan.
OCBC is presently offering at 2.78% interest rate for both new and used cars, which will most certainly appeal to buyers across the spectrum. OCBC is also now offering a competitive 2.98% loan interest rate for cars with renewed COE - only slightly above that of Hong Leong Finance.
As with other banks such as DBS, Maybank and UOB, OCBC also has a fixed 1% early settlement penalty on the financed amount throughout the tenure.
The early settlement penalty for a DBS loan is a percentage based on the financed amount, and not the outstanding loan amount. This can potentially be a huge disadvantage if you choose to fully redeem the loan just before maturity as your outstanding loan amount could be very low, but DBS charges based on your initial financed amount.
It would be wise to choose DBS as your loan provider only if you are sure of retaining ownership of your car until the end of, or beyond the loan term.
Hong Leong Finance
At 2.78%, Hong Leong Finance's interest rates for new and used cars are similar to most of the competition. But it provides the best rate for private cars with a renewed COE: Just 2.88%.
And if you do decide to settle your loan early, there isn't any early settlement penalty after the 18th month of the loan tenure. So if you are sure you will own the car for at least 18 months, Hong Leong will be the best bet for you. Other than the attractively low early settlement penalty, Hong Leong also boasts of the cheapest interest rates for cars with renewed COEs.
Maybank is one of the five companies listed in the above table, which gives out loans for COE-renewed cars. Interest rates for such loans however, are slightly higher at 3.18%. Like Hong Leong and TCL, Maybank does also give out loans for China-made cars.
Like DBS, Maybank also has an early settlement penalty of 1% of the financed amount regardless of how early you settle it.
Tokyo Century Leasing
For those who cannot fork out large amounts of monthly repayments, there's always TCL's balloon scheme. They are one of the two in our list that provides balloon scheme loans.
At 2.68%, TCL currently offers the best rate for new cars. Conversely, its interest rates for used cars and cars with renewed COEs are also the highest, at 2.98% and 3.75% respectively.
TCL's early settlement penalty is 1.5% of the outstanding loan amount with an additional 1% penalty if you settle your loan within 12 months of the tenure. So, make sure you do not sell your car within the first year if your loan is with TCL.
United Overseas Bank
UOB, like TCL, provides balloon scheme loans. However, its loan interest rates for COE-renewed cars are lower at just 3.18%. On a case-by-case basis, UOB may also provide loans for China-made cars.
If you decide to sell off your car before the end of your loan tenure, UOB will charge you with an early settlement penalty of 1% of the outstanding loan amount.
Other finance companies
There are also some companies that charge a flat administrative fee on the early settlement penalties. Their interest rates are typically consistent with those charged by the banks. An example is Lake View Credit Pte Ltd.
In the event that you do buy a car from a direct seller or simply want to keep your financing options open, Sgcarmart Connect - Singapore's first one-stop auto transaction service - can help you apply for a loan and motor insurance from at least five financial institutions. In addition, Connect will help the seller settle his or her outstanding loan, apply for an insurance refund and draft legal documentation for both parties - all for free. Sgcarmart Connect can be contacted at 6744 3540.
Here are some related articles that might interest you
Rule 78 of car loans: Everything you need to know
Calculate your loan interest for early settlement using Rule of 78
Vehicle dollars and sense - A guide to car loans
Renewing the COE of your car might be a fatal error! Here's why
Buying a used car: A guide to getting the best price