Cooling measures drive up car loan interest rates

[Darthrevan]

 

The widely expected rise in interest rates for car buyers has materialised, since measures to restrict the amount and tenure of loans were introduced in March to cool the market.

 

As of yesterday, DBS Bank remained the only bank sticking to the old rate of 1.88 per cent per annum. All the others have raised interest rates almost uniformly to 2.68 per cent since the first mover - believed to be Citibank - revised its rate upwards in March.

 

The higher charges came after the Government announced measures in late February to cool the motor market, including restricting the loan amount to no more than 60 per cent of a car's purchase price, to be repaid in no more than five years.

 

Source: http://www.straitstimes.com/breaking-news/...-rates-20130523

[Ingenius]

I find this justification to be most unreasonable.

[Icedbs]

I find this justification to be most unreasonable.

 

they trying to recover the loss in interest income due to the shorter and small loan by increasing the interest rate

[Wt_know]

aberthen ....

 

big loan + long period = low interest

 

small loan + shorter period = high interest

 

big boys must earn big money ... no matter what ...

 

you put money in the bank give you interest close to 0

you borrow money from the bank, effective interest almost 5% or higher

 

[Gildor8]

Again it depends on market forces.....if more lenders at 2.68%, would they charge only 1.88%?...if DBS remains same rate and everybody goes to DBS to loan money...the rest of the Bank may just follow.

[The_Bear]

they trying to recover the loss in interest income due to the shorter and small loan by increasing the interest rate

 

Then put the money somewhere else. Haven't they thought of that?

[Sforester]

It's unkind to consumers though I don't find it unjustifiable since the loan period is shortened.

[Gendut]

Only in Singapore does the law of supply and demand doesn't apply.

 

Its a dysfunctional country actually.

[Zogel]

Only in Singapore does the law of supply and demand doesn't apply.

 

Its a dysfunctional country actually.

 

How so?

[The_Bear]

It's unkind to consumers though I don't find it unjustifiable since the loan period is shortened.

 

Shorter term means lower risk to lender. Why interest rate went up instead of down?

Higher down payment also means lower risk for lender when borrower defaults.

This hike doesn't make any sense unless the financial institutes have reduced the money allocated for car financing drastically.

[Earthboy]

aberthen ....

 

big loan + long period = low interest

 

small loan + shorter period = high interest

 

big boys must earn big money ... no matter what ...

 

you put money in the bank give you interest close to 0

you borrow money from the bank, effective interest almost 5% or higher

 

not quite true, before the game changed, I loan 50K for 1.88%

[Fuelsaver]

Again it depends on market forces.....if more lenders at 2.68%, would they charge only 1.88%?...if DBS remains same rate and everybody goes to DBS to loan money...the rest of the Bank may just follow.

Just note DBS imposes 3.5% admin on outstanding loan for full settle. The low interest is to encourage monthly payment. Whereas hong leong doesn't impose rule 78 on full settle after 2 years.

[Fuelsaver]

Shorter term means lower risk to lender. Why interest rate went up instead of down?

Higher down payment also means lower risk for lender when borrower defaults.

This hike doesn't make any sense unless the financial institutes have reduced the money allocated for car financing drastically.

Perhaps these risks r lower compared to other financial risks taking into account our country stability.

[Voodooman]

Shorter term means lower risk to lender. Why interest rate went up instead of down?

Higher down payment also means lower risk for lender when borrower defaults.

This hike doesn't make any sense unless the financial institutes have reduced the money allocated for car financing drastically.

 

Risk is lower but cost is the same (maybe higher relative to lower loan revenue).

 

Every loan has its own processing and maintenance costs, iregardless of amount and loan period. At same 1.88% flat and loan quantum that are much smaller with a shorter loan period of up to 5 years, profit are being squeezed as fixed cost are still there, so interest rate must go up to ensure minimum returns are met.

 

DBS probably has lowest cost of funds, hence they can be more competitive than other lenders. They are probably taking market share from others as they still have loads of monies to lend out.

Edited May 24, 2013 by Voodooman

[Earthboy]

Just note DBS imposes 3.5% admin on outstanding loan for full settle. The low interest is to encourage monthly payment. Whereas hong leong doesn't impose rule 78 on full settle after 2 years.

early full redemption always boh wah. the bank will punish buyer..the right way is to do your own calculation and work out the most comfortable loan amount.

 

btw, i thought AD always tie up with selected bank and buyer cant choose which bank without paying them some form of penalty? if they tie up with dbs, we cant choose HL for example. no meh?

[A5SB]

How so?

 

Because now there would be less demand for loans due to the double whammy of shorter loan period and lower loan quantum. In normal situations, lower demand would force price downwards, this is how the basic laws of demand and supply works.

 

But our market is so dysfunctional in Singapore that when demand is forced down artificially by the govt, banks push prices (interest rates) up instead. Maybe they did their maths and figured there's still robust demand for car loans nevertheless. To me its a move that flies in the face of logic.

[Voodooman]

Because now there would be less demand for loans due to the double whammy of shorter loan period and lower loan quantum. In normal situations, lower demand would force price downwards, this is how the basic laws of demand and supply works.

 

But our market is so dysfunctional in Singapore that when demand is forced down artificially by the govt, banks push prices (interest rates) up instead. Maybe they did their maths and figured there's still robust demand for car loans nevertheless. To me its a move that flies in the face of logic.

 

You drastically cap demand and price goes up, demand and supply argument only works well in a free market with some elasticity, not in a highly regulated one. Just like AD's profit margin went thru the roof after COE system was introduced.

[Duckduck]

Its called immature competition laws. This can easily be seen as price fixing but question is will garmen act? Look at the interest rate fixing scandal, I heard many bankers here got fired etc but no media coverage coz it affects our financial system reputation. ..