How To Calculate Car Loan Interest Rates
Getting a car is an investment most Singaporeans hope to achieve.
While some save up to purchase a car, you can get auto loans and own your dream car today.
However, loan interest rates are the decisive factor as to whether you would get car financing or disregard the thought.
Hence, knowing how to calculate car loan interest in Singapore is critical. Basically, you need to see if it’s worth getting into debt just to own a vehicle.
Let’s look at how you can calculate car loan interest in Singapore.
How Does The Car Loan Calculator Singapore Work?
A car loan is a financing service you can acquire to purchase a vehicle and repay later.
You can find out how much you will owe a lender using a car calculator in Singapore. Lenders always draft loan installment plans to ensure you can fully resettle the loan.
Many lenders will offer auto loans. But here is the catch – you could end up paying more if you have no idea how much it will cost to get a car loan.
So how does the Singapore car loan calculator work? Before you can use it to determine car loan interest, let’s look at some of the important factors involved:
Cost Of The Car
The car’s value represents the principal amount, excluding the downpayment on the car. Consider the vehicle’s value to be its cost, subject to its model and condition (used or new).
How long will it take to refinance your car loan, if you do take up the loan?
Shorter loan terms signify higher monthly installments and, in turn, result in lower payable amounts.
In contrast, borrowers opting for longer loan periods will pay manageable monthly installments but higher total amounts.
Here is a tip: Choose a loan repayment plan you can manage without struggling.
Financing a car will undoubtedly incur additional costs.
The interest rates are subject to your creditworthiness as perceived by a lender. Ideally, excellent creditors will get favourable interest rates, unlike bad creditors.
How To Use A Car Loan Calculator
Once you submit the above details (car cost, loan duration, and interest) to the car loan calculator, you should see the following details:
This represents the total amount payable, inclusive of all costs and the principal.
This represents the amount you will pay every month. The monthly installments are inclusive of loan rates and a percentage of the principal.
This represents the amount you borrowed minus the downpayment for a car. The principal paid is factored into the car’s value at the time of purchase.
Here is a straightforward method for how to calculate car loan interest:
Interest (I) = Principal (P) x Rate (R) x Tenure (T)
For accurate results:
- Key in the loan tenure and interest rate without altering time intervals. For example, calculate loan interest based on the rates provided (annualised rates are calculated per year, and not monthly).
- The total loan amount payable must include the interest.
- Divide the total loan amount payable by the number of months you intend to repay the loan to know the monthly installments.
- If you are acquiring a second-hand vehicle, you can determine the loan interest using a used car calculator.
How Much Can You Borrow For A Car Loan?
The Singapore government regulates the maximum a person can borrow when getting car loans.
In most cases, the amount is 60-70% of the Open Market Value (OMV).
- Motor vehicles whose OMV is less than $20,000 qualify for 70% of the valuation price
- Motor vehicles with an OMV that exceeds $20,000 can get 60% of the valuation price
Note that individual lenders decide how much they can give you based on your credit, debt-to-debt ratio, and other financial obligations.
In addition, your repayment ability and Total Debt Servicing Ratio (TDSR) regulations also come to play in determining how much you can borrow.
What COE, OMV And PARF Mean
When acquiring auto loans, you must familiarise yourself with some common acronyms.
Note the following as you shop for the best car loan lender:
- Certificate of Entitlement (COE): This refers to the cost of acquiring a car. It is a legal document that allows a car owner to drive in Singapore for five or 10 years. The cost keeps fluctuating depending on consumer demand.
- Open Market Value (OMV): This is the car’s purchase price, excluding the taxes and duties enforced by the Singapore government. The OMV refers to how much a car would cost in other countries minus the mandatory tax requirements. Financing a car is subject to OMV.
- Preferential Additional Registration Fee (PARF): This refers to the amount pegged against OMV if you decide to deregister a car that is no more than 10 years old.
How Long Should Your Car Loan Tenure Be?
Car loan tenures are mostly up to seven years.
However, a few things will come to play in determining the loan period. For example, there is an exception when getting an auto loan for a used car.
Usually, the Singapore government determines the COE based on the car’s first 10 years. Typically, cars in Singapore depreciate and become “valueless” after 10 years. So if you are getting an auto loan for a seven-year-old car, the maximum loan tenure will be three years as its lifespan would be its remaining years.
There are exceptions on COE car loans that are less than 10 years if they necessitate renewal (you may not qualify for a loan).
However, banks and lenders will help you determine the best financing option.
Remember that the loan tenure determines how much you will pay. Therefore, choosing loan tenures with manageable monthly installments is advisable to avoid struggling every month.
How To Lower Your Car Loan Payment
You can get an auto loan once you understand how to calculate car loan interest in Singapore.
However, knowing how to lower the interest might help to make the loan stress-free. Some of your options include:
- Borrow what or less than you need: Just because you received a 60-70% loan offer as per the OMV doesn’t mean you should borrow the equivalent amount. Borrowing less will lower the loan payment installments you pay.
- Opt for short loan tenures to avoid paying huge amounts: There is one principle regarding loans; the longer the loan period, the more you will pay.
- Check the car’s value and opt for the less expensive ones: Highly valued cars will attract high loan interest rates, so evaluate your options before deciding.
- Research and shop around: Choose manageable loan offers. Capitalise on the lender options you have by comparing funding services and loan rates, choose the most favourable one.
- Use a Singapore car loan calculator: Do your homework. Use this to determine how much an auto loan would cost. Unfortunately, some lenders offer high loan rates. But an idea of what to expect helps you to make more informed decisions.
- Manage your debt-to-income ratio: Having existing loans without a practical solution to settle them reduces your chances of getting affordable car loan rates.
Other Factors To Consider
While knowing car loan interest rates is critical, you cannot ignore some costs because they will be essential in calculating monthly installments.
Additional costs pegged on car loans include:
- A processing fee (not less than $200) is required for loans exceeding $200,000.
- An early settlement fee (a percentage of the outstanding loan) is a penalty for loans repaid before the agreed time.
- Unpaid interest charges (about 20% of the unsettled interest) refer to penalties besides early settlement costs.
- Late payment fees are applicable when a borrower defaults on monthly installments.
Besides these additional costs, it is vital to find out if your bank or lender can issue an auto loan for your preferred model.
Some won’t approve loans for China-made vehicles. Also, get car loan preapproval before transferring ownership rights to your name.
Another considerable aspect is your creditworthiness. Most lenders will think twice about approving car financing to bad creditors.
However, you could benefit from car financing meant for poor creditors. Tip: Try to work on your credit score before looking for auto loans in Singapore.
Where To Get A Car Loan
When researching auto loan firms, the best way to find a perfect lender is to ask the car dealer for suggestions.
Chances are, the auto dealer has preferences (in-house financing services) that could see you getting loans at discounted rates.
This option is viable if you want to secure a 70% car loan even if the OMV exceeds $20,000. With this funding option, the downpayment on a car would be 30% instead of 40%.
Your second option is securing funding from the dealer’s preferred bank or your local banking provider.
With the former, you will have a seamless experience once you sign up with the suggested bank.
But what’s in it for the auto dealer? The bank rewards them for convincing you to get a car loan. Your options include banks such as UOB, OCBC, Standard Chartered, Maybank, and DBS.
In contrast, opting for your personalised bank allows you to get a loan at favourable terms. Look at it this way – the bank has your banking history and can easily evaluate your ability to manage loans before drafting loan interest rates.
Finally, you can shop for independent car financing institutions and find these lenders online or drop by their offices.
A perfect example is licensed money lender Horison Credit, where you can get favourable interest rates.
Get Financing For Your Dream Car Today
Not everyone manages to save up for a car. That’s why you can choose car financing services for a seamless experience.
At Horison Credit, you can get car auto loans and other financial services at favourable rates.