Enterprising car sellers have come up with a number of ways to overcome the authorities’ restriction on car loans, which limits the loan quantum to 50-60 percent of a car’s purchase price, to be repaid over five years, with the remainder as the downpayment. Before the curbs, a buyer could borrow up to 100 percent and take up to 10 years to repay.
The most common way is the “overtrade”, whereby a dealer will offer a buyer a higher value for his trade-in vehicle. This amount comes from the higher list price of the new car. For instance, a certain continental sedan is priced at around $180,000, but its actual transaction price is closer to $150,000. The $30,000 difference is used for overtrade, which helps the buyer with his downpayment. Most new car sellers offer overtrade deals.
Another way is offering separate financing for the certificate of entitlement (COE). Since there is no explicit restriction on COE financing, a car buyer can borrow up to 100 percent of the COE cost. In the case of a $130,000 Japanese saloon, for example, he can take a full loan on the COE, which is around $70,000. For the remaining $60,000, he can borrow $36,000 (that’s 60 percent) So he needs to be fork out only $24,000 – which is less than 19 percent of the car’s purchase price.
What’s next? Perhaps a bank will start offering “Tiered-ARF” financing.
