Taking out a vehicle loan is probably one of the most financially sound aspects of life. If you want to buy a car but you cannot afford to pay for it in cash, then you need to get a loan from a reputable source and with as little interest as possible.
But before getting ahead of yourself and paying for the car that you dream of, you need to first check your finances and ensure that you do not end up stretching yourself too much. Think of your finances and ask yourself: Can I afford this?
Determining What You Can Afford
A car’s value and cost do not only depend on the market price that you see. There are a lot of factors that you should keep in mind before you even get the car of your dreams.
First, you need to consider liquidity risks versus possible loan interests. Consider this scenario, depending on the Open Market Value (OMV) of your car; a financing company can give you maximum loan of up to 60% to 70% of the OMV. This one is because you are expected to shoulder at least 30% of the market value of the car for them to know that you are able to pay for the car.
The numbers are often this simple:
“If the OMV of the car is below S$20,000, then the maximum amount of financing that a person may get is up to 70%, and cars with OMV of S$20,000 and above may get up to 60%.”
Of course, you also have to consider the other factors in financing your vehicle, such as the following questions:
- Can I afford to make a large down payment in cash?
- If I pay a large down payment, can I afford to take out the smaller loan?
- Could I spread out my repayments?
- Is the duration flexible, or should I expect it to more or less be the same?
- What should I do to make sure that the car fits my budget?
There are so many questions that you need to ask yourself as you may get tricked for a bit. Be wary of car brokers as there are some good dealers that are not as popular while there are those that would try to sell as much as they can and get what they can while what they are offering is not as good as what they would want you to believe.
Looking At The Repayment Terms and Penalties
If you are buying a vehicle for the first time, then you probably need to know about the other charges that come out of every loan.
Read every fine print carefully as you may experience a problem in the future if you do not deal with it properly. A good illustration would be set in the illustration below.
There are banks such as Maybank, POSB and DBS that charge you for paying your loan early. They would charge an early redemption fee of 20% of the total interest payable plus an additional 1% of the original loan amount as an early redemption fee.
It can be exciting for you to try and pay off your loan as early as you possibly can, but that may not be a good idea if you have to deal with the cost later.
Stop being too trusting and prevent believing phrases like the following:
- I’ve got you covered, bro.
- Don’t worry; all these clauses are the standard ones.
When you hear your car dealer say any of these things, then you may need to worry and read the fine print.
How Do I Know Who To Choose Between A Dealer Loan and A Bank Loan?
There are so many differences between a dealer loan and a bank loan, and choosing between the two can be a bit of a challenge for you.
What Are The Differences?
- As to the kind of tie-ups, car dealers would have deals that are mostly focused on cars and financing. There are some freebies that come with their loans that could sometimes benefit the car owner. Banks loans are often strictly adherent to the requirements of the loan, and they often do not have any promos.
- The interest rates, however, are fairly substantial indifference. Car dealer loans have higher interest rates than banks, so this is an important consideration.
Should you get a new car or settle for a used car?
This one is the most commonly asked question: Should you try a new car or a used one?
This question often bombards individuals, and it is a valid question. The answer is often a personal and a financial one. A brand new car loses 20% of its value upon getting released to the owner, so you already lose twenty percent when you first drive your car. The good thing, however, is the fact that you are sure that there are no other costs that come with your new car as it is under warranty and insurance.
Can you afford the monthly repayments?
Once you get a loan calculation, you should be able to know if you can afford to make the monthly repayments. Every person can get excited by the fact that they are getting a new car and he forgets about the costs associated with it. If you are planning on getting a new car, you should know how much damage this new car will make to your finances.
Other than the monthly repayments, you need to worry about the cost of fuel financing, tolls, maintenance, insurance, registration, parking, and all of the other associated costs. If you think that you are ready for that, then you can go ahead with your purchase.
The Clean Vehicle Loan
Now that you know how you can deal with the vehicle loan, it should be easier to look at it and actually do something that can make your car buying experience easier.