Motorists take bigger loans as COE prices surge

[Musicwhiz]

Motorists take bigger loans as COE prices surge
Elena Torrijos, On Thursday 27 October 2011, 11:39 SGT

As car prices head upwards, motorists in Singapore are chalking up bigger debt on their motor vehicle financing.

Figures on motor vehicle loans released on Thursday by Credit Bureau Singapore (CBS) show that the average loan amount in July 2011 shot up by 38% compared to the level in the same period the year before.

As interest rates in Singapore hover at their lowest levels in many years, CBS said that motorists now take loans with an average principal amount of $85,105, compared to $61,511 two years ago, and $74,399 a year ago.

"It is unsurprising that loan quantums have surged given that COEs premiums, and consequently car prices, have soared in the last two years," said William Lim, executive director of CBS.

He also pointed out that motorists are buying more expensive cars as premium cars have overtaken mass market brands in sales, and luxury and sports cars have also hit new highs.

Lui Su Kian, head of deposits and secured Lending at DBS Bank, said, "The average loan amount for car loans with DBS have increased by more than 10% year on year. However, affordability remains healthy as customers seeking maximum financing have remained stable."

He added that financing of cars priced at more than $200,000 have doubled compared to 2010 levels as more wealth is created in Asia.

Despite the heavier debt commitment, consumers appear to be managing their motor vehicle loan payments well, at least for now.

According to CBS' analyses, delinquency rates for motor vehicle loans are on the decline as 2.49% of car loan holders had an installment that was overdue by more than 30 days in July 2011, compared to 2.65% and 2.54% in July 2010 and July 2009, respectively.

CBS' data also show that as a result of high car prices, the demand for new motor vehicle loans continue to fall.

From January to July 2011, consumers took up 36,911 car loans, compared to 38,913 and 43,119 in the same period in 2010 and 2009, respectively. These include loans for new and second hand cars.

The CBS study also further revealed the effects of gender and age on motor vehicle loan trends:

• The age group of 40-44 appears to have the biggest financial might to stomach the increases in car prices, as they tended to borrow the highest loan quantum, which stood at $99,411 in July 2011. Conversely, those aged 21-29 borrowed the lowest loan quantum of $57,857.

• Senior consumers above 54 years old bore the heaviest brunt of the steep increase in loan quantums, experiencing the highest increase of 53% in their principle amounts in July 2011 compared to two years ago.

• Consumers aged 35-39 made up 19% or almost one-fifth of new car loan holders, making them the top customer segment for these loans, according to the snapshot in July 11.

• Young motorists exhibit the highest delinquency rate of 3.66%, while consumers above 54 have the lowest delinquency rate of 2.02%. This trend is consistent with other loan products.

• Male motorists tend to take bigger loans than female motorists. They also make up 75% of new loan holders, outnumbering female loan holders by 3:1.

[Musicwhiz]

Business Times - 28 Oct 2011

Car loans get bigger as COE premiums rise

Delinquency rates still low at 2.49%; young motorists have highest rate

By NISHA RAMCHANDANI

AS COE premiums continue to spiral upwards, motorists are chalking up heavier loans, though the demand for new vehicle loans is also falling.

According to the Credit Bureau Singapore (CBS), the average loan quantum for motor vehicle loans in July has shot up to $85,105, compared to $74,399 a year ago and $61,511 in 2009.

'The average loan amount for car loans with DBS have increased by more than 10 per cent year on year. However, affordability remains healthy as customers seeking maximum financing have remained stable. As we see more wealth being created in Asia, we have also observed that the financing of cars priced at more than $200,000 have doubled compared to 2010,' said Lui Su Kian, head of deposits and secured lending for DBS Bank.

However, while the average principal loan is on the rise, consumers seem to be managing their motor vehicle loan payments well presently.

Delinquency rates for motor vehicle loans are dipping, with 2.49 per cent of car loan holders having an instalment that was overdue by more than 30 days in July this year, versus 2.65 per cent and 2.54 per cent in July 2010 and July 2009 respectively, the CBS report showed. Young motorists showed the highest delinquency rate of 3.66 per cent, while those above 54 of age have the lowest delinquency rate of 2.02 per cent.

Meanwhile, the demand for new vehicle loans continues to decline, with 36,911 consumers taking out car loans (for new and second hand cars) from January to July 2011, compared to 38,913 and 43,119 for the corresponding periods in 2010 and 2009 respectively.

'It is reassuring that motor loan delinquency remains low despite the steep rise in COE. CBS will continue to monitor the delinquency rate for motor vehicle loans, and we encourage motorists to assess the affordability of their car loan carefully and practise responsible borrowing and financial management so that they will not be financially strapped and in default of their car loans,' said CBS' executive director William Lim.

The study also showed that consumers aged 35-39 were the top consumer segment for new car loans as they accounted for 19 per cent of these loan holders, while those in the age group of 40-44 tended to borrow the highest loan quantum. Male motorists also took out bigger loans than female motorists, the report showed.

[Musicwhiz]

The Straits Times
Oct 28, 2011
Average car loan rises to $85,000
Amount up by 40% since 2009 due to soaring COE prices: Credit Bureau

By Christopher Tan

CAR loans have ballooned, thanks mainly to soaring certificate of entitlement (COE) prices.

The average loan has revved up in size by nearly 40 per cent since 2009 to $85,105, according to the Credit Bureau Singapore (CBS).

So while the number of loans granted fell to 36,911 in the first seven months of this year from 43,119 over the same period in 2009, the total worth of new loans rose from $2.65 billion to $3.14 billion, based on average loan size.

In the first study of its kind that the CBS has undertaken, the bureau noted that the loan delinquency rate - defined as an instalment payment overdue by 30 days - has remained stable.

The rate was 2.49 per cent as of July compared with 2.65 per cent last year and 2.54 per cent in 2009.

'Despite the heavier debt commitment, consumers appear to be managing their motor vehicle loan payments well, at least for now,' the bureau said.

Executive director William Lim said: 'We encourage motorists to assess the affordability of their car loan carefully and practise responsible borrowing and financial management so that they will not be financially strapped and in default of their car loans.'

Younger borrowers had the highest delinquency rate - 3.66 per cent - while those over 54 had the lowest at 2.02 per cent.

The CBS does not have information on the average loan tenure, but anecdotal evidence suggests borrowers are taking out loans over longer periods.

Mr Anthony Lim, director of credit dealer Kenso Leasing, said most car loan tenures are now 'stretched to the max because car prices are so high now'.

That means a repayment period of 10 years for a new car and a tenure spanning the remaining lifespan of a used car.

DBS Bank, however, said its average car loan tenure has remained unchanged at seven years.

Mr Lim of Kenso said many borrowers are unaware that they will be out of pocket if they settle their loans early.

'Interest rates are as low as 1.88 per cent, but the banks, because of heated competition, are giving out commissions of as high as 4.75 per cent to dealers to get new business,' he said.

He said if a borrower takes out an eight-year loan but sells the car and settles the loan on the second year, he would face a substantial penalty.

On the other hand, lenders have noticed a shift from mass-market cars to more upmarket vehicles in the past two years.

Ms Lui Su Kian, head of deposits and secured lending at DBS Bank, said: 'As we see more wealth being created in Asia, we have also observed that the financing of cars priced at more than $200,000 has doubled compared with 2010.'

Mr Jacky Wong, director of Toyota parallel importer Richburg, confirms this trend. 'I am still getting customers who pay hard cash for a $200,000-plus MPV,' he said.

COE prices are now hovering around $56,000 for cars up to 1,600cc and $76,000 for those above 1,600cc - more than quadruple their rates from as recently as three years ago.

The CBS study is derived from 354,113 motor vehicle loan holders in its repository. The bureau, an associate company of The Association of Banks in Singapore, has 26 member banks and financial institutions.

christan@sph.com.sg

[dydx]

While many people may argue that when a consumer can't afford it, he should not buy a new car by borrowing a big proportion of the purchase price - which now includes a COE tax ranging from $56k to $76k, plus other incidental specific taxes like import duties, etc.

On the other hand, is our government being responsible or morally right, by having happily collected a few billion dollors so far this year from COE taxes alone, bearing in mind that a big portion of the COE taxes collected actually came from 43,119 consumers who have each borrowed a car loan with an average $72.8k loan quantum to be repaid over up to 7 years from his future income?

[sgmystique]

Well, as they say Caveat emptor..."Let the buyer beware"

I personally prefer public transport and usage of taxis when required...just can't bring myself to pay such a huge amount as COE...

While many people may argue that when a consumer can't afford it, he should not buy a new car by borrowing a big proportion of the purchase price - which now includes a COE tax ranging from $56k to $76k, plus other incidental specific taxes like import duties, etc.

On the other hand, is our government being responsible or morally right, by having happily collected a few billion dollors so far this year from COE taxes alone, bearing in mind that a big portion of the COE taxes collected actually came from 43,119 consumers who have each borrowed a car loan with an average $72.8k loan quantum to be repaid over up to 7 years from his future income?

[Musicwhiz]

While many people may argue that when a consumer can't afford it, he should not buy a new car by borrowing a big proportion of the purchase price - which now includes a COE tax ranging from $56k to $76k, plus other incidental specific taxes like import duties, etc.

On the other hand, is our government being responsible or morally right, by having happily collected a few billion dollors so far this year from COE taxes alone, bearing in mind that a big portion of the COE taxes collected actually came from 43,119 consumers who have each borrowed a car loan with an average $72.8k loan quantum to be repaid over up to 7 years from his future income?

I guess all who buy cars go in with their eyes open, so the question now whether the Govt is earning too much from their COE system. The Govt's argument would be that you need to pay a premium for the right to own a car - the general populace's problem is that they see a car as either a necessity (which I disagree with) or a status symbol. Marry the two concepts together and you have a lot of willing people who are throwing money at the Govt.

[hyom]

Car loans are definitely a form of bad debt as opposed to better debt like mortgages. Not owning a car has surely made me a richer person over the years.

[KopiKat]

IMO, many young working adults are making the biggest mistake of their life when they buy a car, the moment they can "afford" (by taking a huge loan over a long tenure) it.

Over the lifespan of that 1st car, they'll end up using a huge chunk of their monthly income to pay down that loan and other expenses (petrol, insurance, maintenance,...). After 10 years, whatever savings they have may not be a lot (here I refer to the typical salaried worker and not those high income individuals). The worst thing would be, they'll probably be anxiously monitoring the COE prices for the replacement car. They take a new loan for the new car, and the cycle repeats....

This is versus another of their peer who understands the FV (Future Value of $$) concept of Mr Warren Buffett when it comes to spending $$$. Assuming the "worst" case scenario of not getting a car at all. Monies not spent are also invested (follow their idol, WB) and compounded. After 10 years, the disparity in Net Worth with the earlier person can easily be a few hundred Ks. Give another 10 years, the gap widen even further. At a certain stage, they can even pay cash for a brand new car (if they want to) and still not make a very big dent to their total Net Worth (Nice feeling, eh??).

So, still want to aim for that nice car the moment you start working?? Not unless it's a requirement for the job. Better save for a few years and make your savings work hard for you first. You give yourself a lot more choices later in life with all the $$ accumulated!

[Musicwhiz]

So, still want to aim for that nice car the moment you start working?? Not unless it's a requirement for the job. Better save for a few years and make your savings work hard for you first. You give yourself a lot more choices later in life with all the $$ accumulated!

Interesting discussion so far, thanks!

To share my thoughts - I've noted that in my social circle (early to mid-30's), it's mostly those who are married with kids who own a car, as they feel that with a child, a car is necessary to ferry the kid around to playgroup, doctor etc. Surprisingly, the singles around me all do not own cars except one or two. There are also a few married couples without kids who own a car (dual income, no kids - power!).

So for the group with kids + a car, I would argue that it severely diminishes their ability to save, as a child already has its own attendant expenses, while a car continues to drain even more (about $1,000 a month). Maybe it's safe to say that unless such families earn a combined income of >$10,000 a month, it will be hard to save and compund a significant portion of their salary and savings?