It happens rather often - you have picked out the perfect car at the dealership when the dealer asks how you plan on financing it. At this point, most buyers would opt for the quickest and easiest option, without much thought. However, jumping the gun without proper research and deliberation may just cost you more than you first anticipated. A car is a big investment, so if there are ways to save money, be sure to leverage them! This guide will give you the lowdown on ways to help when auto-financing your vehicle.
Understanding the Maximum Amount You Can Borrow
When applying for a car loan, the first thing you will want to do is to be updated with the maximum amount you can borrow based on your car’s open market value (OMV). If your car’s OMV is worth up to SGD20,000, you may borrow 70% of the purchase or valuation price. If the OMV goes above SGD20,000, the maximum amount you can borrow will drop to 60%. Do note that this is the maximum cap, and the actual amount the bank will agree to loan you may be smaller. This amount will depend on your monthly income, financial commitments and credit score.
In the same vein, the Total Debt Servicing Regulation dictates that you cannot use more than 60% of your income to repay loans. In addition, ensure that you are financially prepared to make a downpayment of at least 30%, of which you will need to pay in cash.
Currently, most banks offer an interest rate of around 2.78% p.a, but there are a few banks that offer a lower interest rate and some that present higher interest rates. Care loan interest rates and promotions change, so be sure to scour for the lowest interest rate and the available promotions in the market to get the most bang for your buck.
Keeping the Term As Short As You Can Afford
When financing a car, you may want to consider keeping the term as short as you can afford. Of course, with shorter loan terms, you will have to commit to a higher monthly payment. However, it also offers lower interest rates, which will effectively keep the total cost down. Besides, many times, banks would charge higher interest rates for longer loans. As such, a shorter term loan will also reduce the cost of credit.
However, ensure that the monthly payment is set at a payable amount that is comfortable for you. If you foresee that there are other big purchases to make concurrently, do not stretch yourself thin and opt for a longer term.
Pay for Taxes and Additional Fees in Cash
Your car purchase will come with other miscellaneous expenses, including sales tax, registration fees, documentation fees and other purchases like extended warranties. In such cases, you may be tempted to roll some or all of these fees into your financing. Unfortunately, by doing so, you will be increasing your loan amount instead of the value of the car securing the loan. Ensure that you do not owe more on the loan than the car is worth by paying for some or all the miscellaneous expenses upfront, in cash.
Revel in Hassle-Free Auto-Financing at Zion Auto Gallery
Since our inauguration, we have always strived to hasten and streamline the process of purchasing one’s dream car. With our in-house financing services, you will be able to overcome any application challenges that you may face when applying from local banks and financial institutions. In addition to industry-competitive and fast approval, we will ensure that your unique requirements and needs are met through our flexible financing packages. Should you have any loan and auto-financing inquiries, you may reach out to us at +65 6455 2535 and our friendly financing specialists are more than happy to assist you.