Buying a car have never been a cheap purchase but if you are trying to buy a car in Singapore then you probably should know how much money you will spend. Singapore is an amazing country but it has a serious traffic congestion problem. That is why the Singapore government has found a special approach to deal with the problem. Everyone who wants to drive in the country should bid for a Certificate of Entitlement (COE). In addition, there are few other taxes and as a result, the price you have to pay for a car ends up huge. Of course, if you have some savings then it might be a possible investment but to be honest most of us don’t have. Then, the only possible way to afford a vehicle remains a car loan.
Where my money will go? A list with all taxes and fees
Unfortunately, knowing the exact amount of the whole expense is not possible because some of the taxes are calculated later. However, you should know at least how these taxes and fees are composed:
- Open Market Value (OMV) – this acronym stays for the real price of your car. Imagine that you are buying a vehicle in some country where taxes and fees are not included. The whole amount you will pay will be the open market value of the vehicle;
- Additional Registration Fee (ARF) – This is a special fee for registering one vehicle. Its size depends on the size of the vehicle’s Open Market Value. If the car cost is below $20,000 then the ARF is 100% of it. If the car cost is above $50,000 then the ARF is 180%;
- Certificate of Entitlement (COE) – This is something you will need in order to have the right to drive in Singapore. It is a special document, which is valid for 10 years. If you have a driving license but you don’t have COE, you can’t drive. The procedure of acquiring COE includes bidding.
- Preferential Additional Registration Fee (PARF) – COE is valid for 10 years only and people usually deregister their vehicles when 10th birthday gets close. If your car is a PARF car and you deregister it when the time comes, you will get half of the sum. If you get COE renewal loan and pay it for 10 or 5 more years. When you decide to deregister it you won’t get any money except an unused portion of the entitlement;
- Excise duty – this tax is a special one for tobacco, cars and alcohol. It is 20% of the Open Market Value;
- Goods & Services Tax (GST) – It is another 7% of the vehicle’s Open Market Value.
Read the list above very carefully because you will have to pay all of them. Unfortunately, car loans can’t cover COE, taxes and fees. They cover only Open Market Value.
What is the maximum amount for a car loan?
In general, the amount you will get as a loan will depend on the Open Market Value of the car. If the vehicle cost is under $20,000 you will get 70% of the amount, if the cost is above $20,000 you will receive 10% less. These numbers define the maximum amount you could get. Of course, the financial institution will check your credit score and income. Based on them they will reduce the amount of the loan. There is one main rule when it comes to loans in Singapore – you can’t pay more than 60% of your monthly income for loans. As you may notice, you will not get 100% loan for your purchase so you will be ready with at least 30% downpayment.
For how many years I should borrow the money?
Car loans are similar to personal loans. If you are getting a loan for 5 years then your interest rate will be higher than the interest rate of a 2 years loan. Have in mind that COE is valid for 10 years only so after that your loan will be pointless. That’s why if you are getting 7 years old car, your loan has to be up to 3 years. Another option is buying a car older than 10 years, so-called COE cars. If this is your case, you might apply for a COE renewal loan.
How I will be able to finance my purchase then?
In-house financing package
Your car dealer will offer you in-house financing package. Car dealers usually work with financial institutions that offer lower downpayment but higher interest rate. Check out carefully what will be the difference in the whole amount if you use in-house financing instead of bank loan.
Your car dealer will be good enough to offer you a bank loan through him. Don’t think that he was just an extremely good person, banks pay car dealers to offer their loan packages.
Your own bank journey
The advantage here is that you will be able to choose between various interest rates and conditions. The disadvantage is that you will have to lose some time researching.
Have in mind that average interest rate for a car loan in Singapore is between 2.65% and 3.00%.
Some other things you should know
Make sure that your bank or financial institution will give you the loan. Some banks offer packages for COE cars, but some of them – not. Before signing any documents for the purchase make sure you are approved for the loan. Have in mind, that there is a processing fee $200. Another 2 things you should consider affects loan instalments. If you pay-in-advance all your instalments you may have 1% penalty fee. Of course, if you pay earlier your loan you won’t pay interest rates till the end of the period that’s why you will have up to 20% fee based on interest rates.