Buyer beware - Loan rates in Singapore

[ca-dreaming]

I wanted to start this thread to help out fellow car buyers on this thread. In the past few weeks I have been shopping around for cars and thus the loans that go with it. When I started getting quoted 2.8% and 2.28% rates, I thought to myself "WOW! My cost of capital is really low! I have to do the loan". Upon further investigation however I realize that the way they calculate the loan is based on FIXED rate. So let us use an example:

Loan of 100K at 2.8% for 5 years. The way it is calculated is that they take 2.8K (100x2.8%) and multiply by 5 years to give a total interest amt of 14K. Then they take the loan+interest (114K) and divide by number of months to get the monthly rate of $1900.

This may all make sense but if you bear in mind that then banks give you money they quote you APR (Annual % rate). When you translate this into APR the rate is actually 5.3%!!!

When getting these rates please make sure that you are comparing apples to apples. If you are getting a loan rate of 5.3% APR and your savings rate is 0.5% APR then that is the real comparison. Do not compare the savings rate of 0.5% with the 2.8% to think that you are only paying 5-6 times the savings rate. You are actually paying over 10 times the savings rates.

So should you take the loan? First it depends on whether you can afford to pay cash. If you have the cash and if you can make more than 5.3% on the cash you have on the outside (e.g. stock market) then you should take this loan. If you cannot make more than 5.3% return on savings then you should pay cash for the car and consider this to be your return.

Hope this helps y'all in your future decisions!! Happy hunting!!

[14m3]

Thanks for these infor. Does these imply to new cars too?

[iScoupe]

i like Motorimage Subaru offer in house interest rate 2.08% , u will get it as long ut loan minimum $30,000 for minimum 3yrs.

[ca-dreaming]

Yes. From what I understand, it applies to auto loans in general. I verified this with several independent dealers and banks who basically said the same thing. The term they use for these rates is FIXED RATE. So they will tell you that the FIXED RATE is 2.08%. What you need to ask them is what is the effective rate or APR. In most cases I suspect that they cannot tell you or dont know. So the best way to find out is to ask them for 3 inputs....loan amt, term (60months etc) and monthly payment. Then go to some internet auto loan calculator like

Auto loan calculator, car loan payment calculator by Bankrate

Use the same loan amount and term. Keep changing the interest rate till you get the same monthly payment and that will tell you your APR. Ofcourse you can reverse calculate this also if you are a finance type but this method it the easiest back-of-envelope calculation.

[ca-dreaming]

But I suspect that even this motorimage rate of 2.08% is the fixed rate. When you get to a 7 year loan the APR will be close to 6%

[rliewky]

how is the APR derive with respect to the fixed rate?

[Azrielsc]

Informative thread. Stickied for easy reference.

[ca-dreaming]

The APR as the name suggests is the ANNUAL PERCENTAGE RATE. The difference between the APR and Fixed rate method is that in FIXED MODE even if you are paying the principal they are charging you interest on the whole amount for the full term of the loan. Wheras in the APR mode as you make payments they will only calculate the interest based on how much more you owe.

APR
So let us say that the APR is 12% for a 100K loan over 6 months (For simplicity). That means that the monthly rate is 1% (12%/12). So in the first month you will pay interest of $1000 because 1% times $100000 = $1000. The principal works to $17255. This means that now you only have $83745 left. The next month interest is calculated based on this new amt so the interest will only be $837 or 1% of what is left. Here is what the rest of the payments look like:

Payment ($) 17255 17255 17255 17255 17255 17255
Principal Paid ($) 16255 16417 16582 16747 16915 17084
Interest Paid ($) 1000 837 673 507 340 171
Total Interest ($) 1000 1837 2511 3018 3358 3529
Balance ($) 83745 67328 50746 33999 17084 0

In FIXED mode you are paying inrest of 1% of the original loan amount of $100,000 so you will pay more in interest. (DAMN!!).

[satines]

Isnt this the most common way of interest calculation for cars in Singapore since err...err...A VERY LONG TIME, alongside with rule 78 interest calculation.....

[edlms]

Originally Posted by satines

Isnt this the most common way of interest calculation for cars in Singapore since err...err...A VERY LONG TIME, alongside with rule 78 interest calculation.....

yup... try telling the bank/loan company that their way of method is wrong and that you should be paying less interest as the principal sum is reduced... ha ha...

it's like telling the insurance company they shouldn't charge premium based the value of the car+coe but car only...

cheers