Is your business in need of vehicles for transportation? Or are you an individual looking to own a car in Singapore? Whether you are looking for a fleet of vehicles for your catering, delivery, or cleaning business, or just an individual looking for a car, business loans in Singapore can be a great help to fund your purchase.
In Singapore, it is not uncommon for most car buyers to take up auto financing loans. Especially since the cost of driving is so high. Besides buying the vehicle, you will need to spend on registration fees, COE, Road Tax, and Special Tax. The COE alone makes up the majority of the cost of owning a car! Other forms of payment you will need to bear include GST and Excise Duty, among others.
Here, we will be discussing everything you need to know about in-house auto financing. Before we delve into that, let’s first take a look at what auto financing is.
What Is Auto Financing?
To put it simply, auto financing is a category of loans provided by banks or private financial institutions to help borrowers fund their car purchase. It is a form of secured loan — which means that your loan is backed by assets you own, in this case, the vehicle.
Usually, the terms of these loans are set by the lender. Fees, stipulations, penalties, monthly instalment payments, and fees for late payment are some terms that will be discussed in your agreement.
There are 3 types of auto financing in the market — mainly in-house financing, fixed-rate financing, and balloon financing.
In-house financing could be an option if you are worried about getting rejected by a bank for a car loan.
1. In-House Financing
In-house financing is a great choice if you, as a business owner, or an individual, face high chances of rejection when getting a vehicle loan from banks.
Was your car loan application recently rejected? Find out why this might have happened and learn more about how an in-house auto financing loan can help.
link to “Business loan in Singapore: why your car loan application was rejected and how an in-house loan can help”
How Does In-House Financing Work?
In short, private financial institutions and car dealers that have secured enough capital offer loan options for customers who are looking to finance their vehicle purchase. You can easily sign up for a scheme with a lender or car dealer when making purchases.
Interest rates for in-house financing loans may be higher if you are getting the loans directly from a car dealer. They may negotiate a higher interest rate with you than what the lender offers, taking the difference as compensation for handling the application and financing on your behalf.
Nevertheless, the process of getting a loan from either a lender or your car dealer is quicker and easier compared to borrowing from a bank. Unlike banks who may take up to 2 – 3 weeks to approve a loan, an in-house financing loan with a private financial institution can be processed and approved within 24 hours. Here at Capital, we offer in-house auto financing loans to help you with your vehicle purchase. Learn more here.
What Should You Consider When It Comes To In-House Financing Loans?
As with most loans, there are a number of things to take note before you fully commit to your contract. It is important to make informed decisions about your choices and be clear about what getting an in-house auto financing loan entails.
Firstly, you will need to compare interest rates between different lenders and dealers. Rates may differ greatly depending on your terms. No matter how convenient in-house financing loans are, you will need to first ask around and make queries. You do not want to pay more interest than you need to!
Interest rates are not the only thing you will need to consider. You should also compare different terms and conditions such as penalties, monthly instalments, and other repayment terms. Having an idea of your repayment period and whether that is reasonable for your financial means is also crucial.
Lastly, you want to be sure that you are taking the right loan amount. Borrowing more than you need is an unnecessary and poor use of resources. Given that the interest rate for in-house auto financing loans is higher, it is all the more important that the amount you decide to borrow is well calculated and thought out.
In cases where you are unable to repay your loan, you give the lender the right to repossess your vehicle in order to repay their losses. This could adversely impact your credit score, making it very difficult for you to apply for more loans in future.
3 key factors to consider when applying for auto refinancing in-house loans
Compare interest rates among different dealers—even if it is tempting to take one immediately due to the convenience.
You might find a much better deal from a different dealer, saving yourself money.
See how the terms and conditions differ among different dealers.
Given the large expenses involved, you want to end up with terms that do not work against you.
Borrow only the amount you need.
To make sure you are able to repay the loan, and that you do not end up paying too much in interest.
What Is The Eligibility Criteria For An In-House Loan?
It is not difficult to qualify for an in-house auto financing loan.
Borrowers need to be above 21 years old and the maximum loan amount you can take can only be 70% to 80% of the valuation of the vehicle.
In addition, you will need to earn an annual income of at least S$30,000 or an amount that is 4 times higher than your monthly loan instalment.
This is because lenders need to know that you have the financial ability to repay your loan.
in-house auto financing loans are a great option to consider because they are relatively easier to get than getting other forms of auto financing loan, such as fixed-rate financing.
2. Fixed-Rate Financing
This is generally the most common form of car loan in Singapore.
Fixed-rate financing is a loan that charge “flat” interest rates. This means that the interest payment each month is the same throughout the loan term.
For instance, if your S$50,000 auto financing loan has a rate of 2% over 5 years, you will need to pay S$1,000 in interest each year.
This form of loan is easy to get if you have an impeccable financial track record and credit history. It also has a lower interest rate compared to in-house loans. However, if your business is new or is facing some financial difficulties, this form of loan may not be easiest to get for you.
3. Balloon Financing
Balloon financing works a little differently from the 2 types of financing we have just looked at.
To lower monthly payments for their car, some buyers opt for balloon financing as it excludes the minimum PARF rebate in the car loan.
Here is an example of how balloon financing works.
Suppose your car loan is S$50,000 and your PARF is S$10,000. Under the balloon financing scheme, you will only need to pay instalments based on the S$40,000.
The downside to this form of loan is that interest rates are much higher and you might incur penalties in the case of early repayments.
Taking Up An in-house auto financing Loan In Singapore
Owning a vehicle in Singapore can be a costly pursuit. Before you jump in and make a commitment to an auto financing loan, ensure that you have the ability to pay back what is due.
Additionally, you should also have considered the amount you want to borrow. As with most loans, it is never a good idea to apply for an in-house auto financing loan without enough research or plan in mind.
Thinking of getting a business loan in the form of an in-house auto financing loan? With Capital, you can get one within 24 hours.