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Why It Matters

Tackling car loan 'loopholes'

Selling a car with as low as a 10 per cent down payment may appear to contravene government curbs on car loans, but that's what many car dealers are touting these days.

The catch? The cars are sold as private-hire cars - or commercial vehicles - to those who want to ferry passengers for a fee via apps such as Uber and Grab. As such "Uber" cars are registered to a company set up by the buyer, they fall outside of the Monetary Authority of Singapore's rules.

Currently, those buying a car can borrow only up to 70 per cent of the purchase price, with a loan tenure of seven years.

Some industry observers have raised concerns, as the practice allows aspiring car owners with shallower pockets, and who may have no intention of becoming an Uber or Grab driver, to get a vehicle.

During Tuesday's parliamentary sitting, Workers' Party MP Pritam Singh called the practice a "loophole" in the car loan restrictions.

Acting Minister for Education (Higher Education and Skills) Ong Ye Kung, who sits on the board of directors at the MAS, told the House that such practices will be investigated.

This is noteworthy, given that some buyers who obtain their cars via such private-hire purchase agreements could be racking up excessive debt.

Private-hire cars, for one thing, have to be commercially insured. Industry sources say their premiums are about three to five times that of a policy for personal use. Loan tenures offered by car dealers for a 90 per cent loan are also longer - up to 10 years - and are at steeper interest rates.

The popularity of private-hire cars has sparked a surge in rental cars, which are leased out for personal use or private chauffeuring purposes. As of last month, there were 43,462 rental cars here, a 77 per cent increase from the same period a year ago.

Private-hire cars have been touted as a latent supply of vehicles which can augment the fixed number of taxis on the road. But if a huge number of private-hire cars are kept for personal use, then their espoused benefits may be overstated.

A version of this article appeared in the print edition of The Straits Times on September 15, 2016, with the headline 'Tackling car loan 'loopholes''. Print Edition | Subscribe