The motor industry has found ways to get around car loan curbs - a
development that is keeping vehicle demand and certificate of
entitlement prices buoyant.
Checks revealed that used car dealers, parallel importers and credit
companies offer financing that is effectively 80 per cent to 90 per cent
of a car's purchase price, with repayment of up to 10 years.
This exceeds the Monetary Authority of Singapore's (MAS) 2013 curb,
which restricts loan quantums to not more than 60 per cent of the
purchase price and a repayment period of up to five years.
The curb is breached by offering one or more of the following:
• Overtrade - a practice of offering a buyer substantially more for
his trade-in vehicle. This is practised mostly by authorised agents.
• 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.
• Invoice inflation - if a car costs $170,000, the seller will
inflate it to, say, $270,000, so as to secure an 80 per cent loan from
the bank.
• Balloon scheme - a seller subtracts the car's scrap value from the
instalment calculation, resulting in lower monthly payments. At the
fifth year, the consumer "scraps" the car to settle the outstanding
amount, or refinances the car.
All the schemes come with higher interest rates, but consumers who
cannot afford to fork out a hefty down payment under the MAS ruling have
been snapping them up.
An MAS spokesman said: "As part of MAS' supervision of financial
institutions (FIs), we check on their compliance with the rules. If an
FI breaches the rules, MAS will not hesitate to take regulatory action."
The MAS, however, would not say if any lender has actually been taken
to task for any of these schemes. It added that it expects lenders "to
take reasonable steps to ascertain the veracity of the purchase prices
of cars quoted in loan applications".
Mr Ron Lim, general manager of Nissan agent Tan Chong Motor, said the
various schemes that bypass the loan curb show that "there is a lot of
grey areas".
"We hope MAS can enforce it better," he added. "Then we can have a more level playing field."
A businessman who bought a used Bentley Flying Spur recently told The
Straits Times that the invoice for the car - which was selling for
$400,000 - was inflated to $700,000. Mr Y.Z. Liu, 66, said: "It was
blatant cheating. If the car was indeed $700,000, then the first owner
should be compensated."
Mr Michael Lim, president of the Singapore Vehicle Traders
Association, said the association of used car dealers and parallel
importers has been appealing to the Finance Ministry for the loan limit
to be raised.
He played down the high financing deals and said: "Most of these are rental and leasing packages."
However, classified ads in The Straits Times and car portal sgCarMart
are rife with offers of "low down payment", "80 per cent loan" and
repayment over 10 years.
One credit company, Century Tokyo Leasing, has been advertising a
balloon scheme that promises a monthly instalment of about $800 for a
Honda Vezel - nearly 40 per cent lower than the $1,250 required for a
normal hire-purchase deal.
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