SINGAPORE: More car loans have been given out here in 2024, including those for electric vehicles (EVs), which have surged in numbers in recent years.
At the same time, banks and finance companies told The Straits Times there are no signs of borrowers struggling to meet monthly repayments for their car loans.
Such loans, however, are unlikely to get any cheaper in the short term despite the sizeable interest rate cut from the US Federal Reserve (Fed).
The latest Department of Statistics data showed that car loan balances reached US$10.2bil in the second quarter of 2024, up 3.8% on the same period in 2023.
This was the second quarter of year-on-year growth after vehicle loan balances began falling in the third quarter of 2021.
Banks and finance companies similarly told The Straits Times that they have extended more car loans in 2024.
UOB group personal financial services head Jacquelyn Tan said the average monthly volume of car loans disbursed by the bank grew by more than 75% between January and August over the same period in 2023.
The take-up volume of UOB’s green car loans – these refer to borrowing for an EV – also doubled year on year, she added.
OCBC Bank consumer secured lending head Tok Geok Peng said the number of car loans has been “steadily increasing”, noting that the numbers for the first half of 2024 were more than 30% higher than the same period in 2023.
Tok added that the number of green car loans surged sixfold in 2023 from 2021, the year these loans were introduced.
Green car loans accounted for nearly half the number of new vehicle loans at OCBC in 2023, with Chinese EV brands comprising around 40% of them.
Maybank Singapore and Hong Leong Finance have also seen an uptick in car loan numbers.
Maybank Singapore consumer finance head Alan Yet said about 30% are for EVs.
It is a similar story at Hong Leong Finance, where a spokesperson noted that 30% of car loans extended since January were for EVs.
EV loans now make up about 20% of Hong Leong Finance’s total car loan portfolio.
While the Fed’s half-percentage point interest rate cut on Sept 18 signals that borrowing is set to get cheaper, experts noted that it may not have an instant impact on car loans.
Financial advisory firm SingCapital chief executive Alfred Chia said car loans are set by the banks and do not respond immediately to rate cuts.
He added that the rates for these loans are set higher than those for housing loans to reflect the risk of the underlying collateral, which is a depreciating asset.
Moreover, financial institutions typically charge 2.78% a year on loans for petrol and diesel cars and 2.48% for an EV. A flat interest rate is commonly used for these loans.
The monthly payments are calculated based on the original amount borrowed and remain the same throughout the loan’s duration, which can be between one and seven years.
That works out to an effective interest rate of between 5.09% and 5.27% for petrol and diesel cars, and an effective interest rate of between 4.55% and 4.72% for an EV.
PhillipCapital wealth manager Jonathan Wong said flat-rate car loans tend to result in higher overall interest costs.
This is unlike a mortgage, where interest is calculated based on the loan’s outstanding balance.
Wong added that in this instance, the individual pays less interest as his remaining loan balance reduces every month.
For now, financial institutions are not concerned that borrowers are facing financial strain.
They said their customers continue to pay their monthly instalments on time. There are also financing restrictions on car loans to ensure a borrower does not take on more debt than he can afford.
The maximum loan amount for a car is up to 60% or 70% of the purchase price or valuation of the vehicle, whichever is lower.
Wong said that car loans are factored into the total debt servicing ratio (TDSR) calculation.
TDSR caps total monthly debt repayments at 55% of an individual’s gross monthly income.
Other loan obligations include mortgages, personal loans, and credit card debt.
If an individual’s TDSR exceeds 55% of his gross monthly income, he may find it harder to secure a car loan, Wong noted.
Singapore DBS Consumer Banking Group (DBS Bank) retail automotive head Vanessa Lee said the bank has a thorough process of assessing every car loan application against the customer’s financial commitments, income, and assets.
She added that DBS Bank’s customers “have consistently managed to make their car loan payments on time”. The other financial institutions also told The Straits Times they have no issues with their car loans.
Meanwhile, Tan said repayments are “healthy” and there is “no significant weakening in the credit quality” of its loan portfolio.
The Hong Leong Finance spokesperson said the company has “not seen a significant increase in customers facing issues with their car loan payments”.
At the same time, Maybank Singapore said its “repayment records have been consistently good”, while OCBC noted that the number of customers facing issues with payments remains “low and stable”.
A Credit Bureau Singapore (CBS) report provided further details of how consumers across different age groups are coping with their car loans.
It showed that the loan balance for people between 40 and 44 was S$48,493 in the second quarter, up 4.15% from the previous three months, the biggest rise among all age groups. — The Straits Times/ANN
