If you’re not financially gifted, you probably don’t have the disposable income to pay for your car. There are car loans for that. However, applying can be frustrating, especially if you don’t know the requirements.
You buy with your heart, not your head. Most of the time, you already have a pretty good idea of what kind of car you need in your life.
A quick look at the offers in our classifieds and you have found the ideal candidate for you. This is followed by a series of tour and test drive activities that will get your gut feeling down – this is indeed the car for you.
Unless you have funds available for the amount requested by the current owner, you will need to apply for a car loan. We all already know this – the process, which usually takes weeks, always feels a lot longer than it really is.
Especially since you probably would have loved to have had that car in your possession yesterday!
There is an easier way to buy (and sell!) Cars, but more on that in a moment. Let’s focus on minimizing the obstacles that you might encounter on your path to the car loan!
1. Preparation of the necessary documents
As with any business, banks and financial institutions are looking for a return on investment (ROI). Logically, they want to minimize the risk on any loan and ensure that borrowers can raise the required amount to pay off their installments each month.
Make sure you have all of your paperwork under control before starting the whole auto loan process. Have proof of your monthly salary ready – this can be in the form of pay slips, CPF statements, or both.
It’s not uncommon for them to ask for proof of identity / residence as well. Prepare copies of your driver’s license, NRIC and an invoice with your name and address!
2. Know the deposit amount
But it’s not just banks that have to worry. The Monetary Authority of Singapore (MAS) has strict regulations on the maximum loan amount.
For cars with a market value of $ 20,000 or less, buyers can only loan out up to 60 percent of the total purchase price.
This corresponds to a down payment of 40 percent.
For cars with an OMV value greater than $ 30,000, potential car owners must write a check for 30 percent of the total price of the vehicle.
However, do not think that you only have enough money to pay the deposit; Merchants / banks charge you administration / approval fees that can drive this figure up significantly.
Contact the relevant parties to work out the final figure with all the points taken into account.
3. Total debt service ratio (TDSR)
The banks will take into account your monthly salary and the amount of cash you have available after you have paid off all of your existing debts. You can realistically expect approval if you can set aside 20 to 40 percent of your carry-over fee for your car rates.
There are a wide variety of loan calculators available online. Use them to work out the grand total that you can comfortably afford.
You have to be realistic here – exceeding the allotted amount will result in your application being rejected. In this case, you will have to save a few more months to pay off a larger deposit!
Another factor that you shouldn’t overlook in your quest for a loan approval is your creditworthiness. Legally speaking, banks have the option to loan you 70 or 80 percent of the cost of the car in full.
However, poor creditworthiness, triggered by late repayment of other loans or loan defaults overall, can drastically reduce banks’ willingness to borrow.
In this case, you’ll either have to settle for a higher down payment to make up the difference, or work on your credit!
Cent-well spoken …
Waiting for loan approval can be one of the most frustrating aspects of owning a car. But it really doesn’t have to be.
For a less bumpy road to a positive end goal, make sure you are realistic with your loan amount and term, and also keep copies of the papers that prove your financial health.
ALSO READ: Is Buying a Car with a USD 0 Down Payment a Good Idea?
This article was first published in Motorist.