Don’t you just love the feeling of collecting the keys to your brand new car? There are many benefits to owning a car in Singapore, but also a number of potential downsides.
Especially so in Singapore where the cost of car ownership is significantly greater than in other countries, any vehicle purchase on the primary or secondary market typically involves hefty downpayments which eat up a portion of your capital.
And then there’s also the loans to deal with. Since the cost of buying a car is so high, most people will not want to pay cash upfront from their savings and turn to car loans to cover the rest of the cost. What this means is your car now costs a little bit more with all of the monthly interest payments.
Your Total Debt Servicing Ratio (TDSR)
But there’s also an important factor that is often overlooked in these transactions, and that’s your overall credit score. This is especially important if you currently have other loans (like housing or personal loans) or if you’re planning to take one. It may even hinder your ability to take these loans because of your Total Debt Servicing Ratio.
Let’s take a closer look into how taking a car loan can affect your credit.
How Buying a Car Affects Your TDSR
Firstly let’s examine what is TDSR and how it works. The total debt servicing ratio is the percentage of a borrower’s gross monthly income that goes towards loan repayments.
In a bid to prevent Singaporeans from overleveraging and being stuck in debt, the Singapore government introduced the TDSR in 2013. The threshold was set at 60% which means that an individual cannot commit more than 60% of their monthly income for loan repayment.
TSDR takes into account all debt obligations of an individual including property loans, credit card repayments, car loans, student loans, personal loans, etc.
For example, if you are earning $8,000 a month and are making the following monthly payments:
- Property loan ($2,000/month)
- Personal loan ($1,000/month)
At $8,000 monthly income your TDSR at 60% would be $4,800. This is the maximum loan repayment you can make every month. This would mean that your repayments for car loan cannot exceed $1,800.
Planning Financial Requirements In Advance
With the introduction of the TDSR limits, is extremely important to plan out your loan requirements. You never want to be in a situation where you overleverage on your car loan and have to give up buying your dream home because it exceeds your TDSR requirements!
Understanding how the TDSR framework applies is key to achieving the lifestyle that you want.
For most of us, our home and car are two of the most pricey investments. One of the biggest difference is that buying property is often a stable investment for many Singaporeans with the potential for capital appreciation, whereas getting a car is essentially a depreciating asset.
With the TDSR restrictions, does this mean you have to sacrifice one for the other if you can’t get a loan on both? Not necessarily.
There are several options to consider in your planning.
Option 1: Pay More Cash Upfront
An obvious choice is to pay more cash upfront. Whilst it allows you enjoy benefits of both, this may not be the most ideal solution due to financial constraints. There’s also the opportunity cost of locking up your cash in a depreciating asset which could perhaps have been used for smarter investments that could earn returns in the long run.
Option 2: Downsize
If you have limited cash or simply don’t want to spend so much at one go, you may decide to give up one for the other or even “downsize” your house and car. Of course this is less then ideal as you would not be able to enjoy your desired car or your dream home.
For many Singaporeans, a car is a necessary tool for daily lifestyle needs & transport so giving it up entirely would be extremely difficult.
Option 3: A More Cost-Effective Solution – Lease with KINTO One
Thankfully, there’s a cost-effective solution that could help to free up your TDSR and allow you to enjoy the benefits of a car and not sacrifice on your dream home at the same time!
When you lease a car with KINTO One, your monthly payments do not count towards your TDSR limit because you’re not actually taking a loan.
Instead, you essentially only pay for what you use. This opens up the opportunity to receive all the benefits of car ownership without the downsides like expensive downpayments, encumbered TDSR, servicing & maintenance fees and administrative stress.
In fact, KINTO One’s leasing covers almost all costs of car ownership! Including:
- Annual road tax
- Comprehensive car insurance
- Routine servicing & maintenance fees
- 24/7 roadside assistance
With no hidden fees or downpayments, KINTO One’s exclusive membership even offers you fuel discounts, replacement car, concierge service and much more! Check out the cost-saving perks of KINTO One’s car leasing model here.