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MAS restricts Vehicle Loans

Many of my friends are finding it difficult to grab a car to make their life better. And on comes this news today:

Singapore, 25 February 2013

The Monetary Authority of Singapore (MAS) will re-introduce1 financing restrictions on motor vehicle loans granted by financial institutions.

The maximum motor vehicle loan amount will depend on the open market value (OMV) of the motor vehicle purchased:

(i) For a motor vehicle with OMV that does not exceed $20,000, the maximum loan-to-value (LTV) is 60% of the purchase price, including relevant taxes and the price of the Certificate of Entitlement, where applicable; and

(ii) For a motor vehicle with OMV of more than $20,000, the maximum LTV is 50%.

In addition, the tenure of a motor vehicle loan will be capped at 5 years.2

3   The financing restrictions are necessary to encourage financial prudence among buyers of motor vehicles.  In this prolonged environment of very low interest rates, there is greater risk of buyers over-extending themselves on motor vehicles. 

4   The financing restrictions will not apply to loans for the purchase of commercial vehicles3.  They will also not apply to loans for the purchase of motorcycles.

5   The rules will take effect from 26 February 2013.4

1 MAS previously had in place financing restrictions on motor vehicles loans, from February 1995 to January 2003. 
2 For re-financing facilities, only the cap on loan tenure applies.  The sum of the tenure of the refinancing facility and the number of years since the first motor vehicle loan granted to the borrower for the purchase of that motor vehicle was first disbursed, cannot exceed 5 years.  A financial institution may re-finance the full outstanding balance under a motor vehicle loan, subject to its credit assessment of the borrower.
3 “Commercial vehicles” refers to goods vehicles (not including goods-cum-passengers vehicles), omnibuses, school buses, private hire buses, excursion buses, private buses, engineering plants, private hire cars and taxis.
4 The rules will apply to loans granted for the purchase of motor vehicles where the date on which the agreement to purchase a motor vehicle is on or after 26 February 2013, or where there is no agreement to purchase a motor vehicle, the date on which the borrower successfully obtains a COE is on or after 26 February 2013.  In the case of re-financing facilities, the rules will apply where the application date of such facilities is on or after 26 February 2013.

That was fast. It applies tomorrow! Almost no time to take advantage.

Many see this as making it difficult for people to own a car. I see this as allocating the cars to people that are more financial prudent.

Only the rich and those that saved up enough will be able to afford.

I am no expert, but based on demand and supply, it is likely the pool of participants in auction would be reduced, and as such the price may moderate down.

Although you need to come out with 50% which sounds a lot, a moderation could make the cars more affordable (doesn’t mean its economical)

Forcing the loans to be cleared in 5 years (compared to now which can be as long as 10 years) is another move that really breeds prudence.

Overall I think it is a good move from personal finance point of view, but there are really a lot of friends who got married and a car will make life much easier.


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