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 55% of any applicant’s gross monthly income.

This cap used to be 60% but has been reduced and has been made stricter to 55% currently, so that now, more than before, you need to be extra careful what loans you take so that you can still take the most important loan: for your house and or car.

And we are here to help you with managing your TDSR so that you can get the loan that your really need.

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 25% of your income for the housing loan that you wish to take up. It is calculated this way:

55% (maximum allowed) – 30% (currently loan repayment portion of your gross income) = 25% 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 credit line.

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 $2500.

If the housing loan repayment amount exceeds $2500 monthly, it will not be approved.

One way to solve this would be to place more down-payment for the home purchase to lower the monthly figure for housing loan repayment.

More info on TDSR.

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.

This means your monthly installment for the home loan can increase by $800 up to $3300 per month, which in terms of the housing loan, may result in an increased loan amount of a few hundred thousand. $200 – $300k increase is not uncommon, and this depends also on your loan tenure (number of years for the housing loan).

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 Of Car Loan Required Due to Contractual Obligations

Staff Loans

It is quite common that companies offer staff loans for purchase of cars. Unfortunately, this is tied to the continued employment with the company. It is one of the common ways companies use to retain employees. 

However, such company loans to staff need to be repaid in full when you wish to resign and take a better paying job at another company. 

This can be difficult if the loan is a large five figure or even a six figure sum for the car. 

This is where SG Cash N Cars can help. We can refinance your car loan so that you are not tied to the company and avail yourself to a pay increment or better job prospects at the new job offer that you might have found.

Employment Contract Obligations

Another example: 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!