When shopping around for a car loan, you will realise that lenders provide different packages.
To get the best deal in the market, you need to know how to calculate a car loan interest Singapore. It will help you compare the available loans and make a wise decision.
Besides, car loan calculations will enable you to pick a loan you are comfortable with repaying. This is because you will understand the total payment, monthly installments, and the interest charged.
Keep reading this article to learn how to calculate car loan interest Singapore, use a car loan calculator, lower your loan amount, and where to apply for a car loan.
How Much Can You Borrow For A Car Loan?
According to Singapore’s financial market regulations, you can only take out 60% or 70% of your car’s Open Market Value (OMV).
If your car’s OMV is up to $20,000, you can borrow a maximum of 70% of the purchase price or valuation price.
On the other hand, if the OMV is more than $20,000, you can take out a loan of not more than 60% of the purchase price or valuation price.
The remaining 30% or more is the downpayment for a car. You should have enough funds to pay this in cash.
However, other factors may come into play and lower the car loan amount you can get. This is because lenders such as banks look at your credit score, monthly income, and financial commitments.
What COE, OMV And PARF Mean
You have probably heard about the COE in your search for a car. It is one of the factors that makes cars in Singapore very expensive.
However, this is not the only factor that influences car prices. There are the OMV, PARF, and others.
But what do these acronyms mean?
Certificate Of Entitlement (COE)
This legal document allows you to drive your car in Singapore for five to 10 years. This is where you will spend a large sum because a COE can cost about $40,000. However, the cost keeps changing depending on the market demand.
Open Market Value (OMV)
It is the actual purchase price of a car without Singapore-specific taxes and duties such as the COE. Therefore, the OMV represents the cost of a car in countries where there are no crazy taxes like Singapore.
Preferential Additional Registration Fee (PARF)
When buying a car that is less than 10 years old, you can get a PARF refund if you choose to de-register it before its COE expires at the 10-year mark. This value is pegged to the remaining OMV when de-registering your car.
How Long Should Your Car Loan Tenure Be?
As you figure out how to calculate a car loan, one of the important factors to have in mind is the loan tenure. How long can you take to repay your loan?
You can pay back a car loan for up to seven years in Singapore. But remember, the longer the loan term, the more interest you will pay.
Select the shortest tenure possible if you want to borrow a personal loan to finance a car. Your financial status will determine if the monthly installments are manageable.
However, it is a different case altogether if you want to buy a used car. This is because the COE in Singapore can last a car 10 years. After this period, it is regarded as worthless.
Therefore, if you buy a nine-year-old car, your maximum loan tenure will be only a year. This is because the car has only one year left.
Unfortunately, if you want to purchase a car that is more than 10 years old in Singapore, you may not secure a car loan.
How To Use A Car Loan Calculator
Have you used a car loan calculator before? It is a tool that can help you determine how much you need to pay for your loan.
You can compare different loan packages from lenders to find the best offer in the market. Besides, it can help you to come up with a repayment plan.
But first, what do you need before you know how to calculate your car loan interest?
Components Needed To Use A Car Loan Calculator In Singapore
Cost Of The Car
What is the value of the car you wish to buy? If you are taking out a personal loan, you can consider the car’s cost as the principal amount.
However, you should subtract any downpayment you have made. A downpayment on a car reduces your monthly repayment amount.
Usually, lenders in Singapore determine your car loan interest rate based on your creditworthiness. If you have a poor credit score, a lender will charge you a higher rate than a borrower with a good rating.
This refers to the duration you will repay your car loan. For example, you can select a loan term of three years.
The best way to select a loan tenure is to consider your financial capability. Choose a schedule that won’t give you a headache when repaying.
The shorter the loan term, the better because the total amount payable will be lower – if you can manage the payments easily.
You can proceed to use a car loan calculator in Singapore now that you have these three components.
So how do you go about it?
How To Calculate Car Loan Interest With A Car Loan Calculator
Using a Singapore car loan calculator is simple. All you need to do is to key in the required details – that is, the interest rate, loan tenure, and the cost of the car.
Among the results, you will get the total interest for the entire loan duration.
If you use a calculator that amortises payments, you can get the amount of interest you will pay per month.
Car loan lenders have different terms and conditions when giving out loans. However, many use the then-current balance when calculating the interest.
Therefore, the interest will be high when you start to repay your loan. However, it will keep decreasing as you continue to make your monthly installments.
If you default on your loan, the monthly payment is likely to increase due to late payment penalties.
Results Of A Car Loan Calculator
After providing your car cost, the interest rate, and the loan tenure on a car loan calculator in Singapore, you will get the:
Total Monthly Payment
This is the amount you need to pay per month to clear your car loan. It settles both the car loan interest and the loan principal.
Total Interest Paid
The total interest you pay is the car loan’s full cost by the time you finish repaying. This is not the car loan you get from a lender. Instead, the total amount payable is the total loan interest plus the principal.
The principal is the amount you borrowed, minus the car’s downpayment. In simpler terms, it is the value of the car you are buying.
It is calculated based on the value of the car during purchase.
How To Lower Your Car Loan Payment
Financing a car in Singapore requires a heavy capital investment. This may not be possible with your savings, so you need a car loan to back what you have.
You can lower your car loan payment by:
Selecting A Short Loan Tenure
Keep your loan tenure as short as possible to reduce the overall amount you will pay for your loan. However, pick a period that will allow manageable monthly installments.
Purchase A Less Expensive Car
Do you want a car for your business or family, or to please people? Buy a car that will serve your needs and avoid going for a splashy model to make an impression.
Remember, the higher the cost of your car, the more you will need to borrow.
Reduce The Amount You Borrow
Even if you can borrow as much as 70% of the purchase price of the car you want to buy, try to borrow the lowest amount possible. This is because the less you take out from a lender, the lower your loan payment.
Build Your Credit Score
Before you approach a bank for a car loan, check your credit report. How is your rating?
If you have a good credit score, you can get a loan at a lower interest rate, which will lower your payment. If you have a bad score, find ways to improve it before sourcing a loan.
Where To Get A Car Loan
After knowing how to calculate a car loan and comparing the offers available, you can choose to get it from a:
Banks in Singapore such as United Overseas Bank, Maybank and DBS Bank provide car loans. However, the terms and conditions vary from bank to bank.
Besides, the interest rates also vary, and keep changing from time to time.
Remember, banks are likely to give you a car loan if you have a good credit score.
Licensed Money Lender
Another good option for a car loan is a licensed money lender such as Credit 21. These are financial institutions regulated by the Ministry of Law in Singapore.
Therefore, you can trust them to offer you a car loan within the Ministry’s guidelines. For example, your car loan interest rate should not exceed 4% monthly.
Calculating Your Car Loan Interest Is Helpful
By now, you should know how to calculate car loan interest Singapore.
Understanding how to do these calculations will help you compare loan packages from different lenders when looking for a car loan. As a result, you will find the best deal in the market.
You can derive your loan interest, monthly payment, and principal using a car loan calculator in Singapore. You only need to key in the car’s cost, the loan tenure, and the interest rate.
If you are looking for some of the best loan interest rates in Singapore, check out Credit 21. We are a licensed money lender in Singapore with years of experience.