Unless you are financially blessed, chances are you do not have the disposable income to pay for your car. That’s what car loans are for. But applying for one can be frustrating, especially if you are unaware of the prerequisites.
You buy with your heart, and not your head. Most of the time, you would already have a pretty good idea on what sort of car you need in your life.
A quick glance at the offerings on our classifieds and you’ve identified what you deem as the ideal candidate. A flurry of activities follows, with a viewing and a test drive solidifying your gut feel - this is indeed the car for you.
Unless you have disposable funds for the amount its current owner is asking for, you’ll have to apply for a car loan. We’ve all been there – the typically week-long process always seems to feel a lot longer than it really is.
Especially since you’d probably prefer to have said car in your ownership yesterday!
There’s an easier way to buy (and sell!) cars though! More on that in a bit. Let’s focus on minimising the roadblocks you may face on your journey to get a car loan!
1. Preparing the necessary paperwork
As with any business, Banks and Financial Institutions are looking for a Return-On-Investment (ROI). Logically, they would want to minimise the risk with each loan, and ensure that lendees can fork out the requisite amount every month to pay off their instalments.
Ensure that, before you even start the entire process of getting a car loan, you have all of your paperwork in check. Have proof on hand to show your monthly pay – this can take the form of pay slips, CPF statements, or both.
It is not uncommon for them to ask for a proof of identity/residence too. Prepare softcopies of your driving license, NRIC and a bill with your name and address on it!
2. Knowing your down payment amount
But banks aren’t the only thing you need to worry about. The Monetary Authority of Singapore (MAS) has strict regulations governing the maximum loan amount.
For cars with an Open-Market Value of $20,000 or lower, buyers can only loan up to 60 per cent of the total purchase price.
This translates into a downpayment of 40 per cent.
For cars with an OMV figure of $30,000 and up, potential car owners will have to write a cheque for 30 per cent of the total price of the vehicle.
Do not think you can get away with just having enough loose funds for the down payment though; dealerships/banks do bill you for admin/approval charges, which can significantly inflate this figure.
Do contact the relevant parties to work out the final figure with all things considered.
3. Total debt servicing ratio (TDSR)
Banks will take into account your monthly salary and the amount of disposable cash you have after paying off all your existing debts. You can realistically expect approval if you can set aside 20 per cent - 40 per cent of your take home pay to go towards your car instalments.
There are a plethora of online loan calculators. Do use them to work out what is the total sum you can comfortably afford.
You need to be realistic here – exceeding the designated amount will mean that your application will be rejected. In that case, you’ll have to save for a couple more months to pay off a larger down payment sum!
4. Credit score
Another factor that you should not overlook in your pursuit for loan approval is your credit score. Legally speaking, banks have the option of loaning you the full sum of the 70 or 80 per cent of your car’s cost.
However, a poor credit score, triggered by late repayment of other loans or defaulting on loans altogether, can drastically decrease the sum banks are willing to loan you.
In that case, you’ll either have to settle for a higher down payment to make up the difference, or work on building your credit score!
Waiting on loan approval can be one of the most frustrating aspects of car ownership. However, it really does not have to be.
For a less bumpy ride towards a positive end goal, ensure you are realistic with your loan amount and tenure, and also keep copies of paperwork proving your financial health.
ALSO READ: Is $0 down payment car purchase a good idea?
This article was first published in Motorist.