Cash woes? A personal loan to the rescue!
  • Personal Line of Credit Vs Car Loan

    Are you planning to buy a new car or refinance your old car? You could either use a personal line of credit or an auto loan. However, before you make a decision, read on to know which of the two might be more suitable for your purpose.

    Personal Line of Credit (PLC)

    A personal line of credit can give you access to instant cash. According to the agreement that you enter with your bank, you might be able to borrow any amount up to the credit limit approved by your lender.

    Features

    • You can borrow up to your credit limit.
    • You can access the funds within that limit any number of times.
    • Interest will be charged only on the borrowed funds.
    • It could be secured or unsecured.
    • The borrowing limit will be determined by the value of the collateral in case of a secured PLC, while your annual income will be used as a determinant in case of an unsecured one.
    • Effective rates of interest usually range between 18% p.a. and 20% p.a. and are lower than credit card rates which usually start from 25.9% p.a.

    The rates and borrowing limits offered on this loan category by some of the banks in Singapore are as follows:

    Name of Personal Line of Credit Borrowing Limit Rate
    Citi Ready Credit Up to 4x monthly salary 20.95% p.a.
    HSBC Personal Line of Credit Up to 6x monthly salary 12%-18.5% p.a.
    Maybank CreditAble Up to 4x monthly salary 19.8% p.a.
    DBS Cashline Up to 10x monthly salary Up to 29.8% p.a.
    OCBC EasiCredit Up to 6x monthly salary Between 19.98% p.a. and 29.8% p.a.

    Advantages

    • Use cash within the borrowing limit any time you want.
    • Pay interest only for the funds that you have used.
    • Most banks allow you to use their PLC funds for any purpose of your choice. However, don’t forget to read the fine print carefully when submitting the application for a credit line.
    • This loan product is ideal for you if you have a constant need for cash although the amount needed keeps varying.
    • Most banks offer multiple tenure options.
    • You can keep a line of credit active just by paying a minimum monthly due on time. It usually varies between 2.5% to 3% of the outstanding balance.
    • Approval is usually quick.

    Disadvantages

    • Without a strong credit score, you may not qualify for a personal credit line.
    • Just like credit cards, you may have to pay a host of administrative fees like annual fee, over limit fee, one-time processing fee, late payment fee, and late payment interest adjustment fee.
    • Failing to pay even the minimum due on time may attract higher rates of interest and penalty charges.
    • Since you have ready access to cash, you might be more prone to impulsive spending.
    • The rate of interest is generally quite high for unsecured lines of borrowing.

    Car Loan

    It is a secured loan, where the car itself is the collateral, and can be repossessed by the lender if payments aren’t made on time or as per the terms of the agreement. The loan granted is usually a certain percentage of the open market value (OMV) of the vehicle as determined by an assessor.

    The OMV is the purchase price of the vehicle or the current value, whichever is lower.

    Features

    • Tenures can vary between 1 year and 7 years.
    • Dues are usually paid in fixed monthly instalments.
    • Usually 60% to 70% of the open market value of a vehicle is available through car financing, depending on the make, model, year of manufacture, and present value of the car.
    • If you think that your debt burden is too high with your current bank, you may be able to acquire a refinancing deal from another bank.
    • Banks usually offer lower rates of interest and flexible payment options on refinancing loans.
    • You may be able to obtain 100% of the outstanding balance through refinancing loans.
    • For such loans, the new lender settles the dues with the old financer, and gets into a new agreement with you.

    The interest rates offered by some banks on car loans in Singapore are as follows:

    Bank New Car (Flat Rate of Interest) Old Car (Flat Rate of Interest)
    Hong Leong Car Loan 2.48% p.a. 2.78% p.a.
    OCBC Car Refinancing 2.08% p.a.
    UOB Hire Purchase Car Loan 2.78% p.a. 2.98% p.a. (Age of car<=10)
    Maybank Car Loan Starting from 3.25% p.a. (Age of car<=20)

    Advantages

    • You can own a car, usually a big-ticket purchase, without having to pay for it in full upfront.
    • Flexibility in terms of choosing your tenure helps you manage your debt better.
    • Being a secured loan, the rate of interest is usually much lower.
    • Payment in fixed and easy instalments reduces chances of default.
    • Your credit score may not be extremely important in this case because it’s a secured loan.
    • Although most lenders charge a flat rate of interest, there could be some who offer a variable rate, too. Choose the one that suits your financial needs and plans.
    • Financing is available on both new and used cars. However, most lenders won’t finance cars which are 10 years old or more, calculated from the date of registration of the vehicle.
    • No additional collateral or asset is required since the car itself is used as one.

    Disadvantages

    • The vetting process is extremely rigorous and documents have to be in perfect order. This may increase the time of approval slightly.
    • 100% financing may not be available.
    • There is a restriction on the age of cars that need to be financed.
    • Foreigners with employment pass, applying for an automobile loan, will need a local guarantor in Singapore.
    • The monthly payments could be high.

    As you can see, both the products have their merits and demerits. The choice is really up to you. Carefully examine your options and the clauses attached to each. Also think carefully whether you want to pay use cash drawn from a credit facility that charges a high rate of interest but offers greater flexibility to buy your car or whether you want to opt for a traditional auto loan with a greater number of restrictions but which is available at a lower rate of interest and comes with the fixed monthly payment option.

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