Car owners are required to make a 30 or 40
per cent downpayment when buying a car.
Some car dealers may be flouting the law by
offering buyers downpayment lower than the levels specified under
the newly relaxed vehicle financing rules.
A check by Yahoo
Singapore on popular website sgcarmart revealed that
there are dealers offering potential buyers minimum downpayment of
20 per cent or less.
Under the Monetary Authority of Singapore
rules that took effect in May, a car buyer has to make a minimum
downpayment of either 30 or 40 per cent, depending on the Open
Market Value (OMV) of the car, compared with 40 or 50 per cent
previously. The maximum loan tenure allowed is seven years,
compared with five years previously.
A number of dealers are even offering “zero
dollar drive away” deals, which means that buyers need not fork out
a single cent when they sign on the dotted line.
Despite knowing that their offers could be
illegal, some dealers told Yahoo Singapore that
they are providing such a payment scheme as there are buyers who
are unable to afford the downpayment required under the MAS
rules.
Andy Phang, the sales manager of Renaissance
Motoring, said, “The mindset of buyers is, as long as there is a
feasible way to buy a car within their budget and they are willing
to commit, be it the downpayment or monthly installment.
“Hence the (MAS) ruling part is no longer a
factor to consider,” said the 39-year-old.
Hidden costs
in repayment
But another car dealer warned that such a
scheme is typically offered by credit firms, and buyers may end up
paying higher interest rates.
Ismail Yusof, the 50-year-old owner of Dr
Kereta, said that these credit firms typically charge car buyers an
interest of between 3.5 and 4.5 per cent per year, higher than that
charged by many banks.
“Therefore, buyers will end up paying more
over the loan period. However, those who are desperate for a car
will jump and purchase the vehicle because of the lower
downpayment,” Ismail said.
When asked if it is against the law for buyers
or dealers to be involved in such transactions, both Ismail and
Phang said that it is a “grey area”.
Ismail said, “As long as no one is complaining
about it, no one can do anything. As far as I know, most dealers
are playing within the rules but banks are following the rule
strictly,” said Ismail, who added that he is abiding by the MAS
rules.
Phang, on the other hand, said he would still
help buyers who are unable to afford the downpayment. He said some
dealers provide “alternative solutions” for customers to fulfill
their dreams of owning a car, without elaborating.
Cautious car
buyers
Yahoo Singapore spoke to a car
buyer who recently made a downpayment of 20 per cent for his
purchase. Speaking on the condition of anonymity, the technician
admitted that a dealer recently helped him circumvent the MAS rules
when he bought a car.
New car buyers have to consider higher
interest payment even if they can secure lower downpayment from
credit firms, car dealers said. (Photo: Safhras Khan/Yahoo
Newsroom)
Arnold (not his real name), who is in his 30s,
said that he needed a car urgently as his previous car’s
Certificate of Entitlement (COE) was expiring. Under the rules, he
has to make a downpayment of $18,000 to buy his second-hand car,
which was retailing at $45,000.
“I was unable to raise it and I was short of
cash as I need to pay for insurance and road tax too. However my
dealer assured me that he was able to settle it with the financing
company for me. The catch is I had to pay a higher monthly
repayment which is fine with me,” said Arnold, who refused to
reveal more as he was afraid of getting into trouble.
Other potential buyers that Yahoo Singapore
interviewed said they are not willing to take the risk.
Douglas Chua, a human resource manager, called
such financing schemes “artificial financing”. The 55-year-old said
if he were to buy a car, he would make sure that he is not breaking
any rules.
“This is a scheme to bypass the ruling and
there are unscrupulous dealers out there who will kill buyers (with
higher interest rates),” said Chua, who is hoping to buy a new car
soon.
Mutalib Omar, 35, agreed with Chua, and said
that he would not sign up for the scheme. The principle consultant
added that the higher interest rate would ultimately result in
lower cost savings.
“But I know of people who took the deal as
they are desperate for a vehicle. They are mostly parents or they
have elderly parents and need the car to send their kids to school
or to take their parents out,” he said.
In response to queries by Yahoo
Singapore about the dealers who offer buyers lower
downpayment, the Ministry of Trade and Industry said that dealers
who extend motor vehicle financing on a hire-purchase basis are
subject to the Hire-Purchase (Motor Vehicles) Regulations and the
motor vehicle financing restrictions.
“Breaches of the Hire-Purchase (Motor
Vehicles) Regulations will be investigated,” said MTI.
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