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Car Loan Restrictions and Other Changes

Yesterday, MAS announced a series of measures to curb the maximum loans that buyers of a car can take:

  1. For a motor vehicle with Open Market Value (OMV) that does not exceed $20,000, the maximum loan-to-value (LTV) is 60% of the purchase price, including relevant taxes and the price of the Certificate of Entitlement, where applicable; and
  2. For a motor vehicle with OMV of more than $20,000, the maximum LTV is 50%.
  3. In addition, the tenure of a motor vehicle loan will be capped at 5 years.

The changes take effect from today.

These curbs have been something that was on the horizon but it seems that MAS did not want to go the full distance of banning loans on the COEs altogether.

Nevertheless, the changes are still quite significant from the 100% and 10 year loans that are currently floating around in the market.

With people already complaining that cars are getting unaffordable, these latest measures will make it even harder for people to even own a car.

The immediate effect is to reduce demand as people will need to save longer for the downpayment before they can purchase a car.

However, this is a good thing as it prevents people from making impulse car purchases at a level that they cannot afford.

Also, as the interest charged on a car loan is not based on the outstanding loan amount but charged upfront based on the full amount, the reduction in loan tenure will mean that borrowers will be paying much less in interest.

The reduction in demand on its own would have likely resulted in lower prices but this might be offset by an increase in car Additional Registration Fee (ARF) which was separately announced.

The ARF for cars with OMVs up to S$20,000 will be left unchanged at 100%.

The next S$30,000 of the OMV of the car will attract an ARF rate of 140%, and any value beyond S$50,000 will attract an ARF rate of 180 per cent.

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