Refinance of Car Loan – How Or Who Does It Help?
What is refinance of car loan anyway? It can also be called car mortgaging or auto re-mortgaging. Or some may refer to it as a re-loan or redo of the car loan in order to ease the financial situation due to tight cash flow. For more details, you may want to see our FAQ about car refinancing or contact us to find out more.
Below we show some of the situations where doing this was found helpful by those who approached us, you may be in a similar situation where this could help or in a different situation in which doing this may also be useful.
Refinance Car Loan Can Make a Property Loan Possible
In Singapore, getting a bank loan for purchasing of a property requires, besides other criteria, the borrower to fulfill TDSR (Total Debt Servicing Ratio) before the property loan can be approved. TDSR is capped at a maximum of 60% of any applicant’s gross monthly income.
Calculating your TDSR
So, if you should have 30% or your income currently already tied up in loan repayments, such as for your car loan, personal loan, and credit card 0% installment payment plans, then you can only use up to another 30% of your income for the housing loan that you wish to take up. It is calculated this way:
60% (maximum allowed) – 30% (currently loan repayment portion of your gross income) = 30% or your income for the next loan you apply for.
Example for easy understanding:
Your gross monthly income is $10,000:
And using the above example, let’s say $2700 is used for car loan, $300 for a personal loan.
If you apply for a housing loan, the housing loan will only be granted if your monthly for the housing loan is less than or equal to $3000.
If the housing loan repayment amount exceeds $3000 monthly, it will not be approved. One way to do this would be to place more down-payment for the home purchase to lower the monthly figure for housing loan repayment.
Improving TDSR
If a potential borrower does not meet the TDSR requirement, there are some usual steps one can take which will help in the reduction of outstanding liabilities to other financial situations:
- Close credit card accounts that are not necessary
- Clear any personal loans fully
- Clear any credit line that you have but is not being utilized or pay it off
Any credit line which is not secured, the whole credit limit may be counted by the bank assessing your property loan as a possible outstanding loan because you can draw on them at any time.
Refinance Car Loan Can Reduce TDSR
But paying off in cash for all outstanding loans may be difficult. If so, you may like to call on us to refinance your car. If you monthly repayment for the $2700 per month car can be reduced from the example above by $800, this would give a 8% improvement to the TDSR in the above example.
We can help to lessen the monthly payments for you by refinancing the car prior to applying for the home loan and, in so doing, reduce the TDSR to get your housing loan approved.
Refinance Car Loan for Business or Commercial Use
Some SME business owners and sole proprietors have ventured into doing car rentals / PHV (Private Hire Vehicle) transport services and have found this business profitable.
PHV Car Regulations
But they find that in order to comply with the LTA rules, their cars driving Grab or Gojek need to be registered under a vehicle type Z10/Z11.
In order to do so, they would need to pay off their current loan in order for the bank to release the vehicle for change of vehicle type from normal passenger car to PHV status – this usually requires a re-do of the car loan in order to facilitate the transfer and change, unless the owners were able to pay off full outstanding in cash. And this is where we came into help by doing the car refinancing into a loan which allowed for commercial driving!
Banks Are Inflexible For Loan Agreement
Past loan agreement based on cars cannot be changed, and banks are not able to reword your agreement so you can change the car from normal passenger to commercial Z10/11. If you called up your bank, they would advise the same, that you will need to find another loan which allows your car to be used as a commercial PHV.
Changing the car status to Z10 while still on an existing passenger vehicle car loan can result in warning letters and penalties from the current bank you are with – we found out from customers who were hit with financial penalties for doing so.
Rental Cars
Similarly, those who want to rent out their vehicles full time have found that in order to comply to regulations which do not allow personal cars to be rented out on weekdays, they have to change their car status to R10/R11. This change is similarly not allowed if under an existing normal passenger car loan with a bank. We can help with this too, and refinance the car loan so that your new loan will allow you to do car rentals out to the general public for a profit.
PHV and rental cars also require specific limousine insurance which is not sold by all car insurance agents. We are also able to help provide quotes for this. See here for more info on car insurance.
Refinance Car Loan Due to Contractual Obligations
Sometime life can catch one unaware and put us between a rock and a hard place!
We had a customer who worked for a (banking) institution that did not allow him to borrow from other banks. He had worked for the banks for 18 months or more and was unaware of the fine print that was included in his employment contract.
One fine day, his HR department called him up to notify him that he would be in breach of his contract of employment due to his car loan from a bank other than the one he was working at. Should he not be able to find a way to terminate his relationship to the lender who financed his car purchase, he would need to resign and face the penalties for breaching the terms of his employment.
This meant that he needed a big lump sum for settlement of the current outstanding loan, quickly.
We were able to assist him on this issue and help him retain his employment at his current company where he was a senior technical person earning a substantial salary.
Reduction of Monthly Payments
Those who have loans outstanding for their car but whose loans do not stretch till the 10th year (or end of the COE) can ease their current tight situation by re-doing their car loan with us.
We will be able to lengthen the period of repayment up to a maximum of seven years in total when we carry out the car refinancing, or up to the end of COE (whichever is sooner), and by doing so, reduce monthly payments. If you are looking for more monthly budget for your other requirements, and would like to do this, we are the ones to help you!
Even if you have a specific situation which is not mention here, feel free to contact us about your car refinancing needs through our website contact form, by calling us at 92782880 during office hours or clicking on the Whatsapp button to let us know how we can help you! We try to get back to you soon as we can!
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