Concerns over 100 per cent borrowing for vehicles as outstanding car loans hit 12-year high

SINGAPORE – Car dealers are appearing in social media advertisements, promising buyers “$0 upfront” and “100 per cent loans” to secure their cars.

The ads, on Instagram and Facebook, promise buyers that they can skip the 30 per cent or 40 per cent down payment for a car through various schemes, including in-house loans.

One dealer even claimed to offer in-house loans with a 100 per cent guaranteed approval rate, without the need for any cash upfront.

These dealers, largely the smaller players in the industry, are taking advantage of loopholes in the regulatory environment, through inflated prices and in-house loans.

While licensed moneylenders and exempt moneylenders are regulated by the Ministry of Law (MinLaw) under the Moneylenders Act, and financial institutions (FIs) are governed by the Monetary Authority of Singapore (MAS), lenders of in-house loans operate in an unregulated grey area.

In-house financing is effectively unsecured personal loans, Acting Transport Minister Jeffrey Siow previously warned.

Yio Chua Kang MP Yip Hong Weng told The Straits Times that if a financing arrangement effectively allows someone to pay for a vehicle over time in a way that mirrors a loan, then comparable consumer protection standards should be considered, regardless of how the contract is labelled.

“This ensures a level playing field and avoids regulatory loopholes.

“Clearer guidance on advertising claims, stronger disclosure requirements, and coordination across agencies would help ensure that protections remain robust,” said Mr Yip, who previously asked the Transport Ministry if it would review or enforce loan regulations to curb car dealers’ practice of offering 100 per cent financing packages.

He added: “Access to financing should be responsible, transparent and sustainable.

“We should not normalise 100 per cent financing in a way that leaves families one unexpected setback away from financial stress.”

As for dealers offering 100 per cent loans by inflating prices to let buyers borrow more from financial institutions (FIs), INSEAD’s associate professor of finance Ben Charoenwong said both the buyer and seller may be committing fraud.

He added: “If the actual agreed price for a car is $120,000 but the dealer submits $170,000 to the bank, the bank’s 70 per cent loan-to-value (LTV) loan of $119,000 effectively covers the entire real price and the buyer puts almost nothing down.

“That’s not a creative financing structure. That’s deception.”

Calls to curb excessive borrowing and plug loopholes have been growing louder.

Sengkang GRC MP He Ting Ru similarly raised the issue in Parliament, asking if the Government is working with the Monetary Authority of Singapore (MAS) to curb in-house financing that circumvents loan-to-value limits in the auto industry.

In a Feb 4 written response, Mr Siow said: “Buyers are strongly advised to obtain loans through regulated arrangements.

“The Government is monitoring the situation and will tighten regulations to manage the abuse of such regulations if necessary.”

The worries come as figures obtained by The Straits Times showed that households in Singapore had outstanding motor vehicle loans of around $12.4 billion by the end of 2025 – a 12-year high.

Said Mr Yip: “Motor vehicle loans form part of personal debt, and when outstanding balances rise to multi-year highs, it is not just an industry statistic but a signal about financial exposure among households.

“Easy financing can make cars appear more affordable than they truly are.”

Under MAS rules, financial institutions like banks must cap the loan amount given out at between 60 per cent and 70 per cent of the purchase price, depending on the vehicle’s open market value.

To check if full loans are being offered by car dealers with little restriction, ST posed as a would-be buyer of vehicles to investigate the prevalence of such options.

Of the five new and used car dealers ST reached out to, only one advised caution and encouraged prudence.

The rest said they could offer 100 per cent loans, either through in-house financing or by inflating the selling price. None of the authorised dealers, which tap financial institutions for loans, contacted by ST offered such borrowing schemes.

Proof of income

ST visited three companies on Feb 10 to inquire about the purchase of a new small car.

Two dealers immediately confirmed what their ads said – that they would submit a loan application to their in-house financers or partners for a loan covering the full cost of the car, which amounted to around $178,000 with certificate of entitlement.

One dealer said that for a car of that value, the buyer would be looking at a 10-year loan of around $2,000 in monthly instalments. Based on ST’s calculations, the total amount paid over the 10 years would be $240,000.

Buyers would need to show proof of a monthly income of at least $6,000.

The second dealer said a 100 per cent loan would be taken from the firm’s in-house financing unit.

The third dealer said that while it was possible to apply for a full loan for the car purchase, it would be more advisable to pay a 10 per cent down payment at least.

The dealer said this would be more financially prudent for someone earning a monthly income of around $6,000.

However, the dealer added that although it advised against it, it can use a long-held industry practice and inflate the price of the vehicle on paper when submitting the loan application to financial institutions or other loan providers.

“In the eyes of the finance companies, you are actually buying the car at a higher price, not the real price. So that they will loan you the original price amount,” said the dealer.

The buyer will still have to cover the goods and services tax incurred on the difference between the actual and inflated prices.

“(This is done) because we are generating an invoice, we are very law abiding... so we are very careful about compliance but we also try to fulfil our client’s needs,” the dealer added.

Another dealer said it offered the same inflated price scheme, but would absorb the additional GST due to an ongoing promotion.

A third scheme ST learnt about involved buyers claiming they are buying the vehicle to operate a private-hire car (PHC), in order to secure a 100 per cent loan.

PHCs, which are meant for commercial use, are exempted from MAS’ car financing rules.

Aware of practices

Experts said the authorities take a serious view of any attempt to circumvent motor-vehicle financing restrictions.

As for PHCs, ST understands that the Government is monitoring possible exploitation of the PHC exemption, where owners register private cars as private-hire cars with no intention of offering the service.

In a reply to ST, MAS sounded a note of caution over 100 per cent LTV loans, saying unregulated financing schemes carry higher risks, such as hidden charges and bigger losses for the borrowers if they default.

Its spokesperson added that the authority is also aware of the inflated-price practice used by some in the car industry.

“To counter mark-up practices, we expect FIs to conduct checks to assess if the purchase price is reasonable, such as by obtaining independent valuations.”

The spokesperson noted that the vast majority of borrowing for motor vehicle loans are taken with financial institutions regulated by the central bank.

“Other than MAS-regulated FIs, entities which are licensed or exempt moneylenders, or which offer financing in the form of hire-purchase arrangements, are also required to comply with the same motor-vehicle financing restrictions under the respective legislation or regulations,” the spokesperson said.

Prof Charoenwong said MAS could require FIs to independently verify car purchase prices by cross-referencing with LTA registration data, market valuation databases, or a standardised price guide, rather than relying solely on dealer-submitted invoices.

He added: “This is analogous to how mortgage lenders commission independent property valuations rather than taking the seller’s word for it. The technology and data exist; what’s needed is the regulatory expectation.”

Prof Charoenwong also said the Government could expand the Hire-Purchase Act or create a new licensing framework to capture lease-to-own and in-house financing arrangements.

“Agencies could mandate standardised disclosure of total borrowing costs, effective interest rates, and key risks for any motor-vehicle financing arrangement, similar to what regulated lenders must provide,” he added.

Prof Charoenwong said some dealers know that the bank’s loan officer has limited ability or incentive to challenge the stated price, especially when the deal superficially complies with LTV requirements.

So if the invoice says $170,000, that is what gets processed, he said.

“The brazenness – openly advertising 100 per cent financing and guaranteed approvals on social media – tells you exactly how dealers perceive the regulatory environment: they don’t fear consequences.

“That perception changes only when enforcement action actually materialises,” said Prof Charoenwong.

Authorised distributors contacted by ST said that they do not offer 100 per cent loans.

However, they do work with finance companies to extend private-hire car loans for ride-hailing drivers, which can be a higher amount than the standard hire-purchase loans for individuals.

The Singapore Vehicle Traders Association declined to comment when asked about the practice of dealers inflating their selling prices to get a higher loan amount for their customers.

Its spokesman said that being able to borrow more will make it easier to get a buyer.

The Hire Purchase, Finance and Leasing Association of Singapore, an industry body which keeps a register of vehicles that are financed by its members, said that it does not monitor the business practices of its members.