Personal Loan vs Car Loan: Which Should You Choose
In the past 7 years, prospective car owners have lamented about high prices of the COE (Certificate of Entitlement ). The COE costs even increased in January 2013 to a high of S$92,100. However, at the start of September, the Land Transport Authority declared that the COE bidding exercise for August had ended at its lowest ever in 7 years.
The Certificate of Entitlement for cars with 97khw and up to 1,600cc fell to S$36,100. The current COE cost for small cars has followed a downward trend which has mostly dominated the most of the year.
Is this good for potential car owners? Having a much lower price of COE implies that you now can buy a new car with less than S$100,000.
For anyone who is considering to buy your next automobile while the prices for COE are still low, you may need to take a loan.
Between choosing a personal loan or a car loan, which will you go for? Is there any difference between these two?
Kinds Of Car Loans Available In Singapore
Before starting on the differences between car loans and personal loans, it is key that we first know the available kinds of car loans. At present, there are 4 types of car loan available in Singapore:
- Commercial Car Loans
- Used car loan
- New car loan
- Car loan refinancing
When Is Each Necessary?
Being a private car-owner, you need to be concerned only with the last three loans. Why is this? Commercial car loans often are taken by borrowers who would like to buy an automobile for commercial purposes. This can come in handy for company cars, taxi companies, or cars owned by the Uber Lion City Rentals.
Which car is best for me?
The most popular loans are the new car loans. Moneylenders and Banks in Singapore usually will let you take a car loan for the purchase of a car direct from a dealer’s showroom. Meaning you won’t have to visit the bank or lender to have your loan authorized before going to the showroom. So as to make it convenient for you, the process of taking car loans has been streamlined.
When you are considering to purchase a used car, it is important that you realize that most banks will separate used car loans and new car loans.
Why is this so? The reasons for this is because there are some differences between used car loans and new car loans.
Some of these are: When it comes to used car loans, a car has to meet the qualification standard of age. Additionally, you would also need to have a guarantor to act as security for this loan. However, there are some banks and lender who place new car loans and used car loans under the same category.
What Are The Differences Between Car Loans and Personal loans?
Interest Rate: It Is Better To Take a Car Loan
The biggest difference between personal loans and car loans is the rates of interest payable on them. Nearly all car loans come with interest rates which are about the average rate of 3 percent. The interest rate for car loans provided by lenders in the country range between 2.18 percent to 3.875 percent.
Car Loans Vs. Personal Loans
When compared to the car loans, personal loans come with higher interest rates. The interests charged on personal loans will range between 3.8 percent p.a. to 8.18 percent p.a. based on your loan package. Why is the reason for this? This is since different from car loans, the personal loans come as unsecured loans. And because personal loans don’t need collateral, the lenders have to charge higher interest so as to make up for the risk involved.
The personal loan you get depends on your rating and how well the bank or moneylender trusts your ability to repay the loan. When you end up failing to pay back your loan, your lender doesn’t have any guarantee that they may use to recover some of the losses.
Different from personal loans, the car loans come as secured loans. What does this mean? It means that if you take a car loan, your car will be used as collateral. And in an instance where you end up failing to repay your car loan, your lender or bank is permitted to retain the car.
Thus the moneylender may then offer the car for auction so as to regain their loan money.
Loan Tenure and amount
As per the new rules by the Singaporean Monetary Authority (MAS), money lenders can fund up to 60 per cent of a car’s buying price. With this amount, you are now will have to come up with the remaining amount of the buying price from your pocket.
On the other hand, if you go for the personal loans offered by moneylenders, you could have a problem. The personal loan has a set limit for the amount you may borrow from the moneylender. For instance, DBS offers only a maximum amount of 4 times that of your monthly earning. And unless you make $25,000 each month, you may not be in a position to take the needed loan amount to fund your next car.
As regards the terms of the loan tenure, both the personal loans and car loans provide a similar loan period of between 1 to 7 years. Hence, from the perspective of loan tenure, it has both personal loans and car loans at par.
Taking specific loan costs you less
In general, loans that are offered for specific purposes in nature will come with a better deal for you. This will not only apply to car loans but will be true for housing loans and even the renovation loans.
How can you ensure you get the right loan?
Therefore, make sure you are well armed with the necessary information regarding the differences between personal loans and cars loans to help you make the appropriate choice for your next car purchase.