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Car loan tenures raised to 7 years; loan limits also up

MAS cites easing COE premium and inflationary pressures for relaxing 3-year-old financing curbs

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Car buyers can take a bigger loan from Friday.

Singapore

CAR buyers can take a bigger loan from Friday.

The Monetary Authority of Singapore (MAS) will relax the more-than-three-year-old vehicle financing restrictions and allow buyers to borrow up to 70 per cent of the car price and pay it back over a maximum of seven years, instead of five.

This is for cars with an open market value (OMV) of up to S$20,000. Previously, the maximum loan-to-value (LTV) ratio for such cars was 60 per cent.

For vehicles with an OMV above S$20,000, the LTV is now 60 per cent, from 50 per cent before. The maximum loan tenure will also be seven years, also up from five years.

The MAS said the adjustments follow the sustained moderation in certificate of entitlement (COE) premiums and in the resulting inflationary pressures over the last three years.

MAS's deputy managing director Ong Chong Tee said: "In 2013, when we introduced the measures, our immediate aim was to help restrain escalating COE premiums and consequent inflationary pressures.

"Since then, demand conditions have moderated and it is timely to ease the measures."

But he added that the MAS will continue to have the LTV and loan tenure framework in place for the long term, to promote financial prudence and to support the promotion of a "car-lite" society.

The MAS said that since February 2013, the contribution of private road transport (excluding petrol) to CPI-All Items inflation eased from +1.3 percentage points in 2011-2012 to -0.5 percentage point in Q1 2016.

In addition, outstanding motor vehicle loans have declined by 32 per cent from S$14.13 billion in Q1 2013 to S$9.55 billion in Q1 2016.

The authority also said the allowable vehicle population growth rate remains capped at 0.25 per cent per annum.

But it pointed out that COE quotas have expanded in recent quarters, along with a rise in de-registrations.

Since the vehicle financing restrictions and progressive Additional Registration Fee (ARF) structure were announced on Feb 25, 2013, the motor industry has been lobbying the government for what it calls a "fairer" loan quantum of 60 to 70 per cent, stretched over a repayment period of six to seven years.

So it was no surprise that the industry cheered the move, calling it "good news".

Alvyn Ang, Cycle & Carriage's director of multi-franchise operations, said: "It is definitely good news for the industry because it will help a lot. It should push those buyers still sitting on the fence for whatever reason."

Mr Ang, who is in charge of the Mitsubishi, Kia and Citroen brands, hailed this as "the best time to come in" to the showroom, especially since passenger car COE premiums have fallen by up about S$30,000 in the last three years.

He added: "We expect the cuts to generate a lot of interest in the market."

Eurokars Group executive Karsono Kwee also welcomed the changes, saying that they boosted affordability.

But he added that, with the pros, there are also cons.

"COE premiums could go up because of stronger demand," said Mr Kwee, whose company represents the Rolls-Royce, Porsche, Mini, McLaren and Mazda brands in Singapore.

He declined to speculate on the size of the increase, if any, saying: "It all depends on the supply."