A little known rule change made two years ago has allowed car buyers to be exempted from car loan curbs if they wish.
And it is completely above board, without them resorting to less-than-honest means such as inflating invoices, being party to dubious trade-in deals or setting up bogus businesses.
In 2017, the Land Transport Authority (LTA) lifted its requirement for rental cars to be registered under companies.
According to the LTA, more than 4,400 cars were converted from private to rental registration between January 2017 and June this year.
They can be easily converted back to private registration. The process can be done online, and for a nominal fee.
A rental car is not subject to loan curbs.
Most motor dealers said when this change becomes more widely known, more people will use it to secure higher car loans.
Mr Neo Nam Heng, chairman of diversified motor group Prime, said: “I’m sure most of the banks will be receptive to giving such loans, now that the ruling is clearer.
“It also makes car-buying more open and easier, since it is not a loophole but completely legal.”
OTHER WAYS OF LEGALLY GETTING AROUND THE LOAN CURBS
Industry sources said there are other legitimate ways to be exempted from the loan restrictions.
One, by leasing a car instead of buying one.
In a lease, the vehicle still belongs to the leasing company, and is thus not covered by the Monetary Authority of Singapore’s (MAS) rule restricting loans to no more than 70 percent of purchase price and seven years of tenure.
Several motor firms have started leasing, including multi-franchises such as Cycle & Carriage and Trans Eurokars, as well as manufacturers such as BMW and Audi.
Two, by signing up with a private-hire operator.
Again, vehicle ownership will reside with the private-hire operator, which is exempt from the MAS restriction introduced in 2013 and revised in 2016.
But for those who still prefer to own their own cars, simply registering the vehicle as a rental car will avail the motorist to higher loans.
All these methods have contributed to a shrinking population of privately owned passenger cars.
According to LTA statistics, the number of such cars fell from 540,063 in 2013 – the year private-hire operators arrived – to 502,187 in 2017, before creeping up to 509,302 last year.
In the same timeframe, private-hire cars grew from 16,396 to 66,480. By the end of last month, the cohort had swelled further to 72,646.
Another method is to buy a car approaching 10 years old.
Loans for such cars, including those from major banks, will cover the cost of the certificate of entitlement (COE) prevailing quota premium as well as the foregone scrap value of the car.
This has contributed to the COE renewal trend. Last year, the number hit a record 37,114. In the first six months of this year, it has already reached 29,616.
THERE COULD BE CHANGES, THOUGH
Meanwhile, industry watchers reckon some changes to car loans are afoot, and these could come from either the MAS or the Ministry of Trade & Industry (MTI), which covers the Hire Purchase Act.
When contacted, an MTI spokesman pointed out that the ministry had amended the Hire Purchase Act in 2013 and revised it in 2016 to align with MAS car loan rules. But she was unable to say if further changes were planned.
Speculation is that the Government may apply restrictions across the board, regardless of whether a car is for individual or business use.
An MAS spokesman said the authority “is supportive of the prudent extension of credit to businesses, including private-hire operators”.
“MAS monitors the level of credit extended to businesses, and major corporates’ profitability and debt servicing ability, as part of our ongoing surveillance of financial stability risks,” she added.
Motor traders said the authorities should just have one ruling, no matter what the car is used for.
A senior manager with a major car distributor also said while banks are generally compliant, their intermediaries are largely not.
He said: “Smaller credit companies and used car dealers, which take bulk loans from banks or bigger finance companies, provide individual loans without following lending guidelines.”
“Once you walk into the Automobile Megamart (a major used car and parallel import centre), you will see all these offers of low downpayment. They are displayed openly,” he added.
Other less legitimate ways of bypassing car loan curbs include:
1) Overtrade: A practice of offering a buyer substantially more for his trade-in vehicle. This is practised mostly by authorised agents.
2) Disguised leases: In a lease agreement, the car is registered under the lessor’s name, and the monthly rental is substantially higher than instalments in a hire-purchase.
But dealers are readily offering “leases” that allow the car to be registered under the end-user’s name and with relatively low monthly payments via a buyback offset.
3) Invoice inflation: If a car costs $170,000, the seller will inflate it to, say, $270,000, so as to secure a bigger loan from the bank. Several premium makes have inflated list prices.
4) Balloon scheme: A seller subtracts the car’s scrap value from the instalment calculation, resulting in lower monthly payments. At the fifth year, the owner “scraps” the car to settle the outstanding amount, or refinances the car.