How To Calculate Car Loan Interest In Singapore

Written by Shannon Wong on February 16, 2023

Cars are getting more expensive by the day, but the high price tags can’t stop you if you really want to buy one. Yet, you likely don’t have the full amount lying around, ready to be spent on a vehicle. Unless you’ve taken time to save for it, a car loan is the most viable option.

Car dealers know this, and want to persuade you into financing a car through their dealerships. But this is a trap you must always be wary of.

At the very least, it helps to know your financing options and how to calculate car loan interest Singapore before making the big decision.

Fortunately, this detailed guide aims to help you do just that.

Understanding The Key Singapore Car Loan Terms

Before you use a car loan calculator in Singapore, you must be familiar with these elements that contribute to the vehicle cost:

Certificate Of Entitlement

Popularly known as COE, this legal document lets you drive in the country for five or 10 years. It forms the bulk of the car cost, going for about $40,000.

Open Market Value

OMV refers to the vehicle’s real or actual purchase price, exclusive of duties and tax. In essence, it’s the car’s approximate cost in countries that don’t tax car ownership to hell and back, like Singapore.

Additional Registration Fee

This is the Singapore-specific tax you’ll pay when registering the vehicle, usually based on the car’s OMV.

Preferential Additional Registration Fee

A PARF rebate is available when you deregister a vehicle that’s below ten years. It enables you to recover ARF registration tax and depends on your vehicle’s age and ARF value.

How Much Can You Borrow For A Car Loan?

The Open Market Value of the vehicle you intend to buy will determine the maximum possible car loan amount. Generally, you can get a 70% of the vehicle’s cost if its OMV is equal to or less than $20,000, or 60% of the OMV is above this amount.

This only represents the maximum possible loan-to-value ratio. The actual figure may be smaller as your bank or lender will assess multiple factors like your credit score, financial commitments, and monthly income.

According to the Total Debt Servicing Ratio regulation, you can’t spend more than 60% of your earnings on loan repayments.

So you may not get the maximum loan-to-value percentage if you have colossal credit card bills or a more significant chunk of your income goes to housing loan repayments. You should also prepare a 30% downpayment for the car loan to be paid in cash.

How Long Should Your Car Loan Tenure Be?

The average Singaporean has up to seven years to borrow money. But a longer loan tenure means paying more interest. So always aim for the shortest term possible with manageable monthly installments.

But this doesn’t apply to older used cars because Singapore’s COE specifies car loans for the vehicle’s first 10 years of its lifetime, after which it’ll be considered “worthless”.

So if you’re going for a seven-year-old automobile, you’ll have a three-year maximum loan tenure as it’ll have only three years left.

Finally, it isn’t easy to get a car loan for a COE car (over 10 years old) requiring COE renewal. But there are exceptions like Maybank and COE car loans from United Overseas Bank.

How To Calculate Singapore Car Loan Interest Rate

Currently, most lenders and banks charge about 2.78% as the annual interest rate. Here’s how you’ll calculate the total interest rate.

Assuming you’re planning for a $100,000 vehicle with $20,000 OMV. If your credit score and financial obligations are okay, you’ll pay an upfront downpayment of $30,000. You also intend to borrow the other $70,000 for seven years.

Thus, the annual interest amount will be:

2.78% X $70,000 = $1,946

This translates to $162.17 monthly interest.

Understandably, interest rates fluctuate based on the following;

  • Your credit score
  • Loan terms
  • Downpayment
  • Vehicle’s age

So before you commit, make comparisons by computing the different rates in your Singapore car loan calculator. Be sure to check with multiple lenders, at least three, before you head to the dealership.

How To Use A Car Loan Calculator

While you can quickly learn how to calculate your car loan payments manually, a Singapore car loan calculator can quickly determine what you’re supposed to pay without errors.

This convenience makes it easy to pick a favourable loan offer and plan your payments. You must include the following elements to get accurate answers:

  • Cost of the car – think of this as the loan principal, less the downpayment
  • Loan term
  • Interest rate, or how much your lender charges for the loan

Once you’ve inserted the information above, the car loan calculator will compute everything and provide these details.

Total Interest Paid

The calculator will display the entire cost of the car loan, although this isn’t the complete picture. You must add this interest to the downpayment to get the total amount payable.

Total Monthly Payment

This is the total amount payable monthly, comprising the interest and loan principal paid to clear the borrowed amount.

Principal Paid

This refers to the car’s value less the downpayment. It’s usually calculated based on the car’s value during purchase.

The car loan calculator generally comes through once you’ve received loan offers and before you sign the agreement. But once you’ve agreed to the details, every aspect will depend on the terms and conditions.

Of course, Singapore’s banks and lenders have unique terms and conditions. But most of them calculate with the then-current loan balance. Therefore, expect to pay higher interest during the first months of loan repayment as the balance is relatively high.

The interest keeps reducing as you pay the principal monthly, but this only works for a consistent payment schedule. You’ll likely make higher monthly payments when you default due to penalties.

How To Lower Your Car Loan Payment

Your new car will likely strain your budget, particularly if your loan term is short. But you can avoid feeling stuck with expensive car payments in the following ways:

Fix Your Credit

Your credit score determines your loan terms. So always work towards the ideal credit score to enjoy a lower interest rate. You may consider halting the project until you raise your score.

Avoiding Small Loans

If you have to borrow a few thousand dollars, you’re better off without the auto loan. Rather, pause the project and save up your money to buy in cash and avoid the higher interest rates of smaller loans. But if you must, then a new or used car loan calculator will be helpful.

Consolidate Your Debt

This entails combining all loans into a single payment. It’ll take longer to fix your credit score, but consolidation can protect you from high monthly payments, burdening interest rates, or repossession.

Don’t Only Rely On The Dealership

While you should count on the dealer for a financing quote, stopping there may subject you to higher loan payments. Being go-betweens, dealers get paid for setting you up with a lender, and the car buyer probably covers this cost.

Negotiate A Longer Loan Term

Shorter loan terms have higher monthly payments. So negotiate for an extended period, then break the loan into more affordable, smaller payments.

Get Something Cheaper

If you can’t afford it, don’t buy it – overreliance on credit could cause a financial disaster. Instead, get a cheaper but practical car that you can pay for comfortably.

Other Factors to Consider

Apart from knowing how to calculate car loan interest, you must also be aware of the following additional costs:

  • Processing or admin fee (at least $200) – Car buyers who borrow over $20,000 are entitled to this waiver.
  • Early settlement fee (1% of the outstanding loan) – You must pay this penalty if you pay off the borrowed amount early.
  • Unpaid interest fee (20% of due interest) – This is the additional penalty besides the early settlement fee for early settlement.

It’s important to ensure that your lender funds your specific car, as some banks don’t offer loans for COE or China-made vehicles.

Where To Get A Car Loan

Those looking for car loans in Singapore have multiple funding options. Here are some bank offers and their interest rates*:

BankUsed VehiclesNew VehiclesVehicles with Renewed COE
OCBC Bank2.48%2.48%3.18%
Hong Leong Finance2.48%2.48%2.88%
DBS Bank2.48%2.48%
United Overseas Bank2.48%2.78%3.18%

*Information correct at time of publication 

Notably, getting a bank auto loan is relatively complex, and most institutions don’t offer fast-approval loans. Moreover, banks charge somewhat higher interest rates.

But you can always overcome the hurdles by working with a reliable licensed money lender. Fortunately, you’re on the right site.

Calculate Your Car Loan Interest With Ease

Knowing how to calculate car loan interest Singapore is as simple as following the above guidelines. However, a Singapore car loan calculator can make the work easier and deliver accurate numbers to inform your decision.

Moreover, you can avoid the legwork by partnering with 1AP Capital, Singapore’s most trusted licensed money lender.

Our application process is fast, confidential, and has no obligations. So don’t hesitate to contact us or apply today.

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