Regulate car financing

Interesting letter in ST Forum today which I felt I must highlight!

Dec 13, 2010
Regulate car financing

MOST cars in Singapore are bought on credit. Many people use a large portion of their incomes to repay car loans. This will lead to insufficient retirement savings, even if they had earned high incomes while they were working. The extreme scenario is bankruptcy, when the borrower is unable to pay the instalments.

It is easy to buy a car today with little or no down payment. Finance companies are also known to be lax in checking the income of car buyers.

If the authorities make it compulsory for buyers to fork out a down payment for both new and used cars, and for financing available to be limited to a factor of the buyer's income, the car market will be a lot saner.

People would own cars through hard work and savings, and not because of the clever marketing tactics of car dealers and finance companies.

This will result in fewer people running into financial problems after owning cars.

Ng Kwong Yee

I always feel that COE prices will come down to a lower level if car agents are NOT ALLOWED to bid for COE and package it together with the car. My view is that if the COE must be paid for in cash by the car buyer (and not financed by loan), the demand for car will come down quite quickly as not many people have this kind of up-front cash, or are likely more reluctant, to throw on a depreciating asset.

(13-12-2010, 10:15 AM)egghead Wrote: I always feel that COE prices will come down to a lower level if car agents are NOT ALLOWED to bid for COE and package it together with the car. My view is that if the COE must be paid for in cash by the car buyer (and not financed by loan), the demand for car will come down quite quickly as not many people have this kind of up-front cash, or are likely more reluctant, to throw on a depreciating asset.

Hmm, good suggestion! Similar to the COV for property which must also be paid in cash.....I guess if people had to cough up cash for COE they would think twice about getting a car.

Car is definately no go for me...
liability.

(13-12-2010, 10:15 AM)egghead Wrote: I always feel that COE prices will come down to a lower level if car agents are NOT ALLOWED to bid for COE and package it together with the car. My view is that if the COE must be paid for in cash by the car buyer (and not financed by loan), the demand for car will come down quite quickly as not many people have this kind of up-front cash, or are likely more reluctant, to throw on a depreciating asset.

Well said. Wholeheartedly agree!

Actually you can bid for a COE on your own as an individual; but the problem with that is if you try to buy just the car (minus the COE) from the dealer, you will realise that the maths dun makes sense. Cos the dealer will 'package' the car prices so that it still 'cheaper' to get the dealer to bid the COE on your behalf. They do that to entice you to buy the package from them so that they earn a higher cut from the finance company.

It the same when you try to pay cash upfront for the car without the loan. You end up paying more.

Not family not into cars, only got a very old toyota......so my knowledge on car is limited

But pay cash upfront is more expensive than loan?

(14-12-2010, 09:05 PM)newborn1000 Wrote: Not family not into cars, only got a very old toyota......so my knowledge on car is limited

But pay cash upfront is more expensive than loan?

Apparently yes. I've been speaking to a forumer on CNA who has knowledge of such matters, and he told me that you are effectively "penalized" for paying cash upfront without taking a loan, as this means the banks cannot earn your interest and the agent takes in less commission. So they effectively charge you something higher than the stated price of the car.

However, if you factor in the financing costs over time, you're still getting a much better deal paying it off at once!

(14-12-2010, 10:43 PM)Musicwhiz Wrote: Apparently yes. I've been speaking to a forumer on CNA who has knowledge of such matters, and he told me that you are effectively "penalized" for paying cash upfront without taking a loan, as this means the banks cannot earn your interest and the agent takes in less commission. So they effectively charge you something higher than the stated price of the car.

However, if you factor in the financing costs over time, you're still getting a much better deal paying it off at once!

The car dealer are much more clever than that. They cannot charge you more for paying cash upfront.

But they can offer you wonderful 'rebate' if you purchase the car on finance with min loan amount and tenure.

So it will work something like this (example based on my experience. Not applicable in current hyper COE prices era)

Listed price of car: $70,000 (inclusive of COE)
Price of car: $60,000 (excludes COE)
In-house finance rebate (min 30K 6 yrs): $5,000

So, summary is that..........

Loans after rebates looks cheaper than cash up front,

but after years of financing cost it will be expensive?

tat is one leverage u don't want to use...

cos the car is a liability zero value after 10 yrs, not an appreciating asset.