Regulate car financing

[Musicwhiz]

tat is one leverage u don't want to use...

cos the car is a liability zero value after 10 yrs, not an appreciating asset.

The truth is that many Singaporeans continue to use leverage for their cars by taking up expensive car loans (expensive refers to the interest rate, not the loan principal). The problem here is that many want to purchase a car even when their finances are not steady and they can ill afford to maintain a car. Those who have been working for 1-2 decades can comfortably afford a car by paying cash; while those who don't save much will continue to rely on leverage and debt to fuel their consumption.

Such is the way of the world; and I guess you will only know who is swimming naked when the tide recedes.

[iisterry]

Tip: Take a loan, but only for the duration that you intend to keep your car for. Eg; 1-5 year loan. (When you stretch the loan and decide to redeem early, your effective compounded rate is doubled/tripled due to usage of Rule of 78 calculations)

Interest rates are really low even if compounded. It improves your OCF/FCF. It is akin to a business sense.

The only time when it makes sense to just pay cash is when your monetary assets is to the extend that it would not make sense to take a loan for a packet of tissue ($0.30).

Other factors may vary, DSR, affordability, needs, wants, etc... but this is strictly about loan VS cash.