Owning a car in Singapore for one's adult life could add up to a whopping $1.6 million, say financial experts. And that's just for a non-flashy 1.6-litre family sedan.
Those who can't do without a car should be prepared to make lifestyle changes to cope with tough new curbs on car loans, financial advisers told The Sunday Times.
Car buyers must now make down payments of 40 per cent to 50 per cent of the purchase price and settle car loans within five years, under new central bank rules. The market had been unregulated for a decade, allowing car buyers to borrow up to 100 per cent of purchase prices and take as long as 10 years to repay.
Financial advisers were quick to point out the triple whammy of reduced financing limits, high certificate of entitlement prices and hefty down payments.
For instance, the down payment on a new Japanese or Korean 1.6-litre car costing around $150,000 is now at least $60,000.
"For the average income earner and for younger age groups in general, the best thing to do may be to avoid purchasing a car altogether," said Ms Geraldine Lam, an investment specialist at financial advisory firm Providend.
She calculated that owning a 1.6-litre car here could cost between between $1,304 and $2,641 monthly, for loan repayments and running costs such as petrol, insurance, parking fees and servicing.
This could add up to as much as $1.6 million over 50 years, assuming one has a car from age 25 to 75.
Committing to larger monthly loan repayments over a shorter period could also affect a person's ability to borrow for a property in future, the experts warned. That is because banks often look at a potential home buyer's capability to service the home loan based on his other financial commitments.
Before putting down that hefty down payment for a car, buyers should consider what else they could do with the money, the experts said. Among other things, $60,000 is enough for a down payment on a resale Housing Board flat in some estates, or a wedding banquet for 350 at a top hotel. Or it could be invested. For example, investing $1,000 monthly with a yearly return of 4 per cent would yield $1.9 million at the end of 50 years.
For those who insist on getting a car, the rule changes may mean having to make lifestyle adjustments to keep up the payments.
"The majority of people will need to cut back on their variable spending, by eating out less or dining at a hawker centre instead of a fancy restaurant," said wealth management consultant David Gardner at The Henley Group, which provides financial planning services.
Buyers might also want to consider getting a used car instead of a new one, as this will mean a lower initial cash outlay and taking a smaller loan.
Instead of spending on a costly car, Ms Lam suggested relying on taxis as an alternative, including booking a dedicated cabby on a regular basis.
Checks with banks revealed that Singaporeans mainly do not take the full 10 years to repay their car loans.
A DBS Bank spokesman said: "We have observed that most car buyers in Singapore tend to repay the loan in full within four to seven years. Repayment delinquency has also improved over the last few years as consumers become more financially savvy."
Lecturer Ng Ko-Vin, 32, said last week's changes convinced him that he should buy a used Honda Edix instead of a new car, as it will mean forking out less cash upfront.
Public relations executive Melvyn Tan, 35, who is still hoping to buy a car, said: "I was planning to put a 30 per cent down payment, but now I have to redo my sums and save a bit longer."