Singapore is one of the most expensive place on Earth to be owning a car. However, despite the cost of car ownership, many Singaporeans are still looking to own one. Social status and convenience are two of the tops reasons for owning a car. Nonetheless, owning a car can be made less expensive, but that’s if you know the right hacks and tips.
If you are a first-time owner looking to get your own set of wheels, then this is the must-read guide for you. We have a list of hacks and tips on car loans and insurances for first-time car owners like yourself.
Car loan tips that will help make owning a car more relaxing for first-time owners
1. Don’t let the advertised interest rate mislead you
Car loan advertisements are pretty gimmicky. Thus, you need to ensure that you do not get misled by the advertised interest rate. Unlike home loans which are usually quoted in effective interest rate, car loans are usually quoted in flat interest rate.
The key difference is the principal that is used in the calculation. Flat interest rate is calculated w.r.t. the initial loan amount while effective interest rate is computed w.r.t. the current (leftover) loan amount.
If your car loan looks too cheap to be true, it might be because you are looking at the flat interest rate rather than the effective interest rate.
2. Banks’ car loans vs dealers’ car loans
If you are buying from a dealer, your car dealer will might offer you their own version of a car loan. You might find some car dealers who act as the middleman between you and the bank. As the middleman, they will get quotes from the bank, add some spread on interest rate and then pass it on to you. This is part of some car dealers’ tactic to earn some more revenue from you (because, why not?). Thus, it pays to be wary of such practice.
As a buyer, you should always do your own car loans comparison to make sure that your car dealer isn’t fleecing you. That being said, car dealers can sometimes offer a “better” deal than banks’ car loans. This is usually part of the car dealers’ tactics to entice you into committing to a car purchase. But there are two things you need to watch out for: Early payment fees and longer loan tenure.
When you pay off your loan early, the car dealer is unable to make money from your interest payments. Thus, they will levy an early payment charge to compensate for their “loss”. While banks also have such fees, you need to read the fine print and make sure that your dealer’s early payment charge isn’t exorbitant. To maximize their earning from extending loans to you, car dealers might try to get you to sign up for a longer loan package. Don’t fall for this sales tactic. The lower monthly repayment rates from a longer loan might be a ploy by the car dealer as a sales tactic to make your car sound “cheaper”.
3. Beware of your car loan impact on TDSR
This is especially for those of you who are considering owning a car before your first home. Total debt servicing ratio (TDSR) is a loan framework that was introduced by MAS to promote responsible lending and financial prudence. Under TDSR, your monthly debt payments cannot exceed 60% of your monthly income. The car loan that you have taken will be included in the TDSR calculation. If you are considering taking a personal loan for the car down payment, your TDSR will be further impacted.
Thus, if you are planning to get a car first, you need to ensure that the car loan doesn’t affect your TDSR. Else, it could jeopardize your finances and plans to get your dream home.
Car insurance hacks that first-time owners must know
1. Get a car insurance that charges you based on your mileage
In the past, car insurers view all drivers in the same way, regardless of how much you drive. Drivers are only measured by the number of years that have passed since their policy was bought. This means that you will be classified in the same category as drivers who drive 1,000km, even if you had driven more than 10 times the mileage that he/she clocked. This is unfair because the chances of you getting into an accident increases with the mileage that you clock.
Thus, one tip that car owners should know when it comes to buying car insurance is to opt for one that charges you by your clocked mileage. For example, NTUC Income’s FlexiMileage plan lets you earn a maximum of 35% discount on your premium by driving under 9,000 kms per year. However, the prerequisite is that you need to install their telematics device in your car. For a potential 35% discount, we think that it is pretty worth it.
2. Telematics insurance: Get rewarded for good driving habits
But what if you drive more but still manage to keep yourself accident-free? Doesn’t this mean that you have good driving skills that have kept you safe despite the long distances that you drove? For those of you who think that you are a self-proclaimed Michael Schumacher roadster with safe hands, you should also opt for telematics car insurance.
Under a telematics insurance scheme, the car insurer will install a black box on your car. Some car insurers require you to download a mobile app to record your driving performance. The device will then track every manoeuvre that you make on the car such as acceleration and breaking. Based on the data collected, if they deem that you are a safe and careful driver, you can save up to 20% on your premium! The 20% discount is almost a sure-get discount for the experienced drivers out there.
3. Hacking the No-Claim Discount (NCD) policy
For first time car owners, you might not be familiar with no-claim discounts (NCDs). It is basically a discount given by your insurer because you haven’t made any claims in the past few years. NCDs start at 10% if you manage to be accident-free for the first year. It increases by 10 percentage points for every additional year of staying away from accidents, i.e. 20% in year 2, 30% in year 3. The maximum NCD you can get is 50%. However, if you were to get into an accident while enjoying your NCD, your NCD will fall by 30 percentage points (e.g. from 50% to 20%).
There are two hacks that you can use to avoid such a scenario: Buying insurance with guaranteed NCD or paying for a NCD protector. Let’s start with the simpler one, i.e. NCD protector. NCD protector is like an insurance rider. Every year, you pay a little more premium (e.g. 10% of your annual premium) to get yourself a get-out-of-jail card. Paying for NCD protector allows you to make one claim per year without affecting the NCD that you have worked so hard to protect.
The other hack is to get car insurance from insurers that lets you keep your NCD for life. Right now, FWD is the only car insurer in Singapore that provides you with a lifetime NCD guarantee. Furthermore, they also provide overseas coverage when you drive in parts of Malaysia and Thailand!