In the Strait Times published today in the Home section, there are two articles written on the Motor traders coming out creative ways to beat the Vehicle Loan Curb.
2) Used car traders using overtrade to ease the high down-payment.
Let us look at the first case: Leasing Program!
No doubt this will transfer the ownership to the car dealers with the following benefits:
1) Low deposit
2) No insurance / maintenance worries ( excluding no frill Leasing deals)
3) Keeping of Non Claim Discount (Insurance) for up to 5 years
4) No Vehicle Depreciation Risk
The downside of the leasing program is as follows:
1) Higher monthly payments compare to car ownership
2) Leasing program is for 5 years. Any early termination of contracts might be sued for termination of contracts
3) Maintenance/ accident repair must be done in their workshop, this is a concern for people going for no frill leasing deals. Typically, authorized dealers workshop charges higher fee which I would not go into details. Accident repair must be done in the their workshop as the car ownership is still theirs, more likely that it will cost a bomb if no insurance claim is made.
4) Higher Insurance Premium (for no frill deals), typically insurance for leasing car are higher compare to private car. On top of that no other drivers are allowed to drive that lease car unless included in the insurance policy (again this will cost a bomb in the insurance premium)
5) Mileage – depends on the deals, some deals that only allows a certain mileage to be clock in the lease vehicle, any excess of mileage will be penalised.
6) Can’t do any decoration in the leased vehicle – vehicle not owned by you.
7) At the end of the lease, some deals might need you to return the vehicle in the original conditions, thus extra cash upfront to repair to return the vehicle (check this out before you sign on the dotted line).
Basically, car leasing is not a bad deal after all, just that the leasing period which I felt is a little long, maybe one to two-year leasing period should be ideal for the drivers. Any drivers who want to lease the vehicle from the dealers must read all the fine prints carefully, questions them if in doubts before signing. Get the normal leasing deals (excluding no frill deals), although you are paying a little higher, but you do not need to worry about maintenance/ breakdown of the vehicle.
Next we look at the used car dealers using overtrade to ease the down-payment.
For every $10,000 overtrade, the buyers will come out less $6,000 down-payment. In order to close the deal, the used car dealers will try the higher possible overtrade for buyers to lower down the down-payment. Typically, the banks will inform the dealers what is the maximum loan allowed for the loan and the dealers would work backwards from that (basically all about paperwork).
The bank will not strictly follow the market value of the used car as there is no fixed price on each car (of course not for those ridicules high price), they will close one eye on that so long the paperwork are done properly. The loan will only approved if the buyer meet other MAS requirements.
In short, be it leasing or overtrade, with the expected increase in COE quota in the next coming one to two years, financial prudent is the most important thing to consider before signing on the dotted line. If you had existing car, hold onto it till the COE drops before deciding your next course of actions.