Ease in loan regulations, good news or a bad news?
- Fabian Teo
- Jun 1, 2016
- 3 min read
Indeed a good news to behold. Finally, vehicle loan restrictions has been eased by the MAS recently. Now, car buyers are able to apply for a vehicle loan of up to 70% with a maximum tenure of up to 7 years for vehicles with OMV (Open-Market Value) that are less than $20,000. For vehicles with OMV of more than $20,000, car buyers are able to loan up to 60% of the car price. A 10% increment from the previous loan ceiling imposed by MAS. The maximum tenure has also increased by 2 years from the previous maximum loan tenure of 5 years.
The Good News...
So, at the end of the day, would it be beneficial to car buyers? Yes, and no. Well from the buyers point of view, it would generally encourage potential buyers to own a car whom previously are not able to, due to the high down payment. But now, with the higher loan limit, more buyers especially younger buyers with lesser purchasing power, are able to procure a car with lesser cash up front, therefore easing the restriction of purchasing a car. Secondly, the increment of the maximum loan tenure from 5 years to 7 years enables car owners to service their loans through a longer time period as compared to before.
Lets do a simple calculation based on a $130,000 Toyota Altis. With the current regulation of maximum 70% loan, we are able to away a new car with $39,000 in down payment, servicing a monthly installment of $1129.06 over a period of 7 years*. As compared to the previous regulation, a new car can only be driven away with $52,000 in down payment, servicing a monthly installment of $1361.43 over a period of 5 years*. Therefore with the current vehicle loan regulations, it helps more car buyers to buy a car, easing on their pockets in the long run.
*(the prevailing bank interest rate of 2.98% are used in our calculations)
The Bad News..
Its indeed a good news for car buyers, sellers and dealers alike. However, that being said, from a supply & demand point of view, an increment in the number of buyers within the market, would further increase car prices in relative to higher demands within the market, in the long run. With our current car prices already considered exorbitant as compared to other countries, any further increase to the car price would discourage car ownership.
Not just car prices, increase in car ownership would also meant increment in COE premiums in the near future. With an increased COE premiums, it would also means future car prices would be ridiculously high, even up to the point of making it impossible for average citizens to own a car. To make matters worse, driver app companies such as Uber could make use of such situations to do another massive buyout of COE premiums, causing further spikes to the already high COE premiums.
A Double Edge Sword.
We therefore, concur that this current ruling in the vehicle loan regulations should not be seen as an entirely a good news after all. In the end, it just proved to be a double edge sword, which could potentially do a further damage to the car ownership market. Lets do our part to slow down the spike of car prices and COE premiums, by making sure that we only buy a car when we are able to fully utilize its worth. This way we are able to help each other as a society to have our own car.
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