FOLLOWING a couple of days of speculation, Maybank is set to raise the interest rate on car loans after this weekend, with other financial institutions expected to follow suit eventually. But some dealers say the impact on new car buyers is small and mostly psychological, with car prices unlikely to be affected for the time being.
The rate for a five-year car loan is likely to rise 50 basis points to 2.78 per cent, after staying at 2.28 per cent for the past two years.
Maybank's increase is understood to be in line with the recent jump in Sibor or the Singapore Interbank Offered Rate.
OCBC and DBS are seen as two of the biggest players in car financing here, followed by Maybank and Hong Leong Finance, as well as the in-house financial services arms of the German car brands. One source says he expects their rates to go up too, with any lag depending on how financially strong they are or how much more business they want to make.
He adds: "They may not react immediately, but they will because the cost of funds has hit the roof."
After the Monetary Authority of Singapore (MAS) imposed vehicle financing restrictions in February 2013, the maximum tenure for a car loan is five years, with the maximum quantum capped at either 50 or 60 per cent, depending on the vehicle's OMV or open market value.
For a so-called "small car" in certificate of entitlement (COE) Category A costing, say, S$100,000, a 60 per cent loan at a flat rate of 2.78 per cent over five years will result in a monthly instalment of S$1,139 or S$25 more than the S$1,114 at the current rate of 2.28 per cent.
For a "big car" in COE Cat B priced at S$130,000 for example, the monthly instalment for a 50 per cent loan over five years will be S$1,233, up S$27 from S$1,206 now.
"Paying for that new car will definitely cost more, but the increase is relatively small," says the sales director of a Japanese dealership. "The biggest impact should be psychological because some buyers may view it as a stumbling block."
But he believes they will "get used to it".
The general manager of a premium dealership says some small car buyers "may feel the pinch more" because the increases add up over the years.
"But many don't have any choice because they still need to take a loan to buy a car," he adds.
However, there is a small group of customers who can afford to pay for the full amount in cash and he expects their number - ranging from 10 to 30 per cent depending on the brand - to increase slightly.
"They are cash-rich and may not want to pay the additional costs,"' he explains.
Until now, many of these buyers do not need a loan but take one anyway because of the incentives offered, such as cash rebates and attractive servicing deals.
"Dealers are also incentivised to offer financing packages because we get a commission from the banks," said the general manager. "So far, the commission is unchanged. But if it is, then we will have to change the car price accordingly."