Quantum of motor vehicle loans hit 10-year high in Singapore

[Musicwhiz]

Holy cow!

The Straits Times
www.straitstimes.com
Published on Mar 14, 2013
Quantum of motor vehicle loans hit 10-year high in Singapore

By Royston Sim

A study by Credit Bureau Singapore has shown that the quantum of motor vehicle loans reached a 10-year high last year.

According to the bureau's analysis on car loans from 2003 to 2012, motorists took new loans with an average principal amount of $90,401 last year - a 130.8 per cent increase from $39,161 in 2003.

Despite the heavier debt commitment, motor loan delinquency generally fell over the last decade.

The bureau found that only 2.7 per cent of car loan holders had an installment that was overdue by more than 30 days last year, the lowest in 10 years.

The figures factor in loans taken by consumers for new and second hand motor vehicles.

Only motor loans by member banks of the bureau such as DBS and Citibank are included in the study.

[Musicwhiz]

The Straits Times
www.straitstimes.com
Published on Mar 15, 2013
Bigger car loans, but fewer defaulters
Average sum last year was $90,000, but trend to change with new curbs

By Royston Sim

BUYERS were taking out bigger car loans last year than in the last decade, yet there were also fewer defaulters.

A Credit Bureau Singapore (CBS) study showed that, on average, motorists borrowed $90,401 to fund their car purchases last year.

This was a 130.8 per cent increase from $39,161 in 2003, from when the amount rose steadily.

The average loan was $51,362 in 2007, $73,451 in 2010 and $83,621 in 2011, following the increase in car prices because of higher certificate of entitlement (COE) premiums.

This trend is about to change after the Monetary Authority of Singapore (MAS) last month restricted car loans to a maximum of 60 per cent of a vehicle's purchase price. And the loan will have to be repaid within five years.

Previously, buyers were allowed to take out a 100 per cent loan, with a tenure of up to 10 years. The MAS said the new curbs were necessary to encourage financial prudence.

The bureau's executive director William Lim said yesterday: "With the new motor vehicle loan curbs, CBS will closely monitor future delinquency rates and trends. I do not see delinquency rates rising. It will either stay the same or go down."

Despite the heavier debt commitments in past years, the bureau found that the number of defaulters generally fell over the last decade.

About 2.7 per cent of car loan holders had an instalment that was overdue by more than 30 days last year - the lowest since 2003, a year after CBS was launched.

"It is interesting that delinquency rates have remained low despite the increase in loan quantums," said Mr Lim.

This could be due to a reasonably healthy economy, low unemployment rate and relatively flexible repayment schedules, he added.

The CBS also found that younger motorists aged between 20 and 29 had the highest default rate, while consumers aged above 54 had the lowest.

For instance, 3.8 per cent of borrowers in the first group failed to pay their loans last year, compared with 2.2 per cent in the latter group.

Demand for new loans also dipped in the last three years, the bureau found.

It put this down to the sharp reduction in the number of COEs available in recent years as well as the high COE premiums.

CBS' analysis was derived from 329,841 car loan holders in its database, and included loans taken for new and used vehicles.

The bureau's study also found that motorists aged 40 to 44 tended to borrow the largest amount. Last year, the average loan taken out by this group was $99,634.

Male motorists also made up 70 per cent of loan holders, and they tend to take out bigger loans than women.

roysim@sph.com.sg

[valueinvestor]

Another World first. Cheers !

[Musicwhiz]

Personally, I cannot imagine myself feeding the banks like this and making them so fat. $90,000 principal with a say 3.5% interest rate is $3,150 per year, over 10 years this adds up to $31,500! Since interest on car loans is computed on a flat basis and not reducing balance, it doesn't matter how quickly you pay off the loan as the installments have already imputed this total amount of interest inside!

So you end up paying 1/3 more for the cost of the car, in interest alone!

Perhaps an argument could be made for huge mortgage loans as property is an "appreciating asset" (note the quotation marks), but a car is definitely a rapidly depreciating asset, so one should always try to minimize borrowing too much.