Authority Imposes Restrictions On Car Loans
Tuesday, 26th February 2013
The Monetary Authority of Singapore (MAS) is imposing restrictions on loans for private cars to safeguard against borrowers defaulting on their repayments. As of immediate, the central bank said consumers will be limited to borrowing 60 per cent of the purchase price of a motor vehicle when the open market value (OMV) is S$20,000 or less (the cheaper 1.6 litres Korean/Japanese car). And 50 per cent cap on auto loan will be imposed when the OMV is more than S$20,000 (the more expensive car). The MAS is also capping the tenure of a motor vehicle loan at five years. So a brand new Toyota Corolla Altis 1.6 (A) Classic with a drive away cost of $130,000, the buyer will have to cough out $52,000 in hard cold cash. And followed by paying a monthly installment of $1,500 per month for the next 5 years.
According to MAS, the move is to reduce the risk of buyers over-extending themselves. The new restrictions do not apply to loans for either commercial vehicles or for motorcycles. The MAS previously had in place financing restrictions on car loans between February 1995 and January 2003. Credit Counselling Singapore (CCS) said the costs involved in maintaining ownership of a vehicle is one of the reasons cited for car owners falling into debt. CCS also said 54 per cent of some 1,500 car owners it counselled in the past four years cited a combination of costs like monthly payments, parking and ERP charges as factors that have resulting in them being in debt.
In addition, the more expensive cars will have to pay higher Additional Registration Fees (ARF) with a new tiered tax rate being introduced in Singapore Budget 2013. The Toyota with an OMV of $15,000 will see no change in the ARF rate. The Audi A5 with an OMV of $45,000 will incur an additional 22 per cent of ARF or $10,000 more, while a high-end luxury model like the BMW 7 Series will see a 42 per cent increase in ARF payable or about $50,000 more. The move by the authority is expected to dampen demand for cars and hence the demand for Certificates of Entitlement (COE), prices of which have hit record highs over the past year.
Loopholes: Car buyer could still borrow from Credit Agencies and Money Lenders which are not covered by the prevailing loan restrictions set out by the Monetary Authority of Singapore (MAS). The downside of borrowing from them - higher interest rates and unfair loan terms for the consumers.