How to Get a Car Loan in Singapore

For most Singaporeans, a car is a sign of success, especially since Singapore is one of the most expensive places in the world to own a car. Even a modest family sedan can cost upward of S$110,000 – that's about 30% of a three-room HDB flat.

That's a key reason why most Singaporeans choose to get a car loan. Car loans are widely available in Singapore, and getting a car loan can be a relatively quick and easy process if you understand how to navigate the application and approval process and know what to do to prepare effectively.

Whether you're getting your very first car or upgrading your current vehicle to a newer model, here's everything you need to know about how to get a car loan in Singapore and how to thoroughly prepare for getting a car loan.

Before applying for an auto loan, the first and most crucial step you should take is to get a copy of your detailed credit report. If you have a Singpass account, you can conveniently obtain an online copy of your comprehensive credit report directly from the official Credit Bureau of Singapore (CBS) website at a nominal cost of S$8.00 (before prevailing GST).

Why is this important? Well, in Singapore, banks are not required to give you the maximum loan quantum. Just because they are allowed to loan you 70% of the purchase price, it does not mean that they must.

If you have a poor credit score, there is a possibility that the bank will lower your loan quantum. If your credit report reflects serious issues, such as a credit grade of 'C' or a statement of default, it is possible that your loan application will be rejected altogether.

As such, it is important to build your creditworthiness before thinking of major loans like a home loan or car loan.

Factors that lower your credit score are late repayments on unsecured loans like credit cards, multiple loan applications in a short period of time, or having debts written off.

If you have poor credit or no credit history at all, you can build one up by taking out small loans and paying them back responsibly. The easiest way to do this is to use a credit card and always repay the full amount (there is no interest charged on credit cards if you make full repayment). That's why you need to obtain and carefully review your detailed credit report first to fully understand what you currently stand to qualify for and see if any credit improvement is warranted, because without this crucial initial step, you may be unpleasantly surprised by the less-than-favourable car loan interest rates you're offered.

>> MORE: How to build credit score in Singapore

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Most car loans have a 2% to 3% interest rate p.a., but be sure to compare all your options. Do not go for the first and most convenient offer. We know it’s boring to visit banks and talk about interest rates, but over seven years, even a difference of 0.5% can result in significant cost differences.

You should also compare the different sources of financing, be it from the bank or something organised by the car dealership.

If you do not know how to make comparisons, speak to other car owners or visit forums like sgCarMart for help. Be prepared to do the legwork, or be prepared to get ripped off! There is no advantage to taking on a more expensive car loan.

When comparing car loans, you want to ensure you're taking a comprehensive approach and considering all relevant factors.

• Look into both traditional lenders, such as established banks and credit unions, and also explore financing offered by online lenders, as they may sometimes provide more competitive interest rates or more flexible loan terms.

• Carefully and meticulously compare not only the advertised interest rates but also all other loan terms, including the overall loan duration or repayment period.

• Pay close attention to any and all associated fees, such as loan processing fees, early repayment penalties, or various administrative charges.

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Pre-approved car loans work the same way as other loans. You can apply online at your chosen bank or loan provider.

Currently, it's important to note that only a select number of banks and lenders in Singapore offer car loan pre-approval as a standard service, so you will need to proactively check with your preferred financial institution to determine whether they provide this option.

Once approved, you will be informed of the maximum amount you can borrow, which gives you greater clarity on the actual car make and model you can buy. Your bank will honour up to the maximum amount indicated.

In contrast, traditional car loans are only applied for after you have chosen the car you want to buy. Your dealer will help you with the application, but you will need to fill out some paperwork, which could be a lengthy process. 

Then, your application will be sent for processing, which usually takes a few days. During this time, you will not know whether your loan will be approved, which leaves your car purchase hanging.

People often seek pre-approval for their car loans to gain a much clearer understanding of their purchasing power and establish a firm budget before even visiting car dealerships. This proactive approach also provides the potential benefit of securing more competitive interest rates and more favourable loan terms, as lenders may be willing to offer better deals to pre-approved buyers who demonstrate a higher level of financial preparedness and certainty.

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Work out the expense ratio of your car. Overall, the monthly cost should not exceed 20% of your monthly income. If you earn $7,000 per month, you should not be spending more than $1,400 a month on car-related costs, inclusive of the loan.

Remember that besides the loan, your car incurs other expenses such as road tax, maintenance, car insurance, parking fees, Electronic Road Pricing (ERP) charges, petrol, and other miscellaneous costs.

If the total amount would exceed 20% of your monthly income, you may want to consider getting a car at a later date, when your income has grown.

It’s also essential to ensure you can repay your loan if you lose your job or if unforeseen circumstances impact your ability to meet your car loan term obligations. If something goes wrong in the second or third year and you need to sell the car, you may not even recoup enough from the sale to pay off your remaining loan.

It is important to at least have a “buffer” period. Always ensure you have enough saved to repay the loan for another three to six months, even if your income is lost. This will give you time to find alternative income sources or to offload the car at the best possible price, regardless of the car loan term length you initially chose.

Never take a car loan when you are living from one paycheck to the next. If you don’t have any savings, it’s best to assume that you cannot afford the loan, even if you qualify for it on paper.

It's important to use pre-approval rates or actively explore other car loan calculator tools available online to accurately estimate your potential monthly car loan payments and the total overall loan costs. With this information, you might decide that you may prefer to borrow less than the maximum amount that a lender says you can, if this means a more manageable car payment that fits comfortably within your budget.

You should also be proactively determining your own maximum affordable monthly car payment amount, as this will ultimately help you to set a realistic budget for how much you can responsibly spend on a car, especially if you have other significant financial obligations to meet. When setting your car-buying budget, it's also prudent to allow an additional 10% to 20% of the car's purchase price for unexpected car-related expenses that may arise.

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When you're considering how to get a loan for a car, it's important to start by carefully choosing the right car that adequately meets your needs and fits your pre-determined budget. Then, thoroughly consider the available loan offers from various lenders when making your final decision on which car to purchase within your affordability range.

Next, match the car’s final purchase price with your approved loan amount. Don’t forget to factor in other significant costs associated with car ownership, such as comprehensive car insurance premiums and annual road tax fees, when calculating your total car-related expenses.

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The final step in the process of getting a car loan from a bank is to finalise the loan agreement and complete the car purchase transaction. If you are purchasing your vehicle from an online car retailer, this finalisation process may be slightly different and more streamlined.

>> MORE: 7 factors to consider before buying a car in Singapore

Don't forget the crucial step of carefully reading the fine print of the loan agreement, confirming all details of the loan, and formally finalising the terms with your chosen lender to secure your car insurance coverage before driving off the lot.

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To make a truly smart and financially responsible car purchase and effectively avoid potential financial pitfalls down the road, ensure that your other essential financial responsibilities are properly prioritised, such as your home loan repayments.

Remember that a house is essential, whereas a car is not. Singapore is small and well-connected. Don’t end up getting a smaller home loan and living in an uncomfortable situation for 15 to 20 years just for the sake of a car, which will barely last you 10.

Plus, if you have a poor credit score and your resulting car loan interest rates are very high and unfavourable, and if you don’t absolutely require a car immediately, it might be a much wiser financial decision to spend approximately six months to a year diligently improving your credit score and then apply again for the best way to get a car loan, which will likely result in significantly better loan terms.