askST: Is the practice of packaging cars with insurance and loans legal?

Reader Danny Yeo asked about the practice of motor companies packaging their cars with insurance and loans. "It is packaged in such a way that if buyers were to opt for their own insurance and finance companies, they will end up paying more in total. Thus, buyers will have no choice but to accept their recommended insurance and finance companies," Mr Yeo said. "Obviously, the distributors or the car salespersons, especially the latter, will gain something out of the deal. Can you advise if this practice is legal?"

Senior transport correspondent Christopher Tan answered.

It is a free market practice, and I don't think there is anything wrong with it from a legal standpoint.

If a consumer can find a substantially better deal for insurance or car loan, he should forego the packaged deal. Or he can switch service provider after the first year/s.

Think of it as something similar to a packaged holiday. The airfare, transfers, accommodation and often, meals are provided as a single deal. If you go for an a la carte deal, or a free-and-easy package, you might or might not end up paying more. But the choice is yours.

Yes, the motor company and the car salesperson get a cut from the deal. Again, that is a free market practice.  As long as all the parties concerned openly agree to the commission rate and have written up as a contract, it is commerce.

It becomes a kickback or bribe only if it is done covertly.

If however, you feel strongly that this form of business goes against your grain ethically or morally, perhaps it is best that you just refuse the packaged deal - even if you eventually end up paying more.

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