The Straits Times
THEY may have perfect credit histories and earn around $3,000 a month, but many consumers are finding it hard to get a car loan.
Faced with gloomy economic conditions, banks and financial institutions seem unwilling to lend and are tightening the credit lines they do hand out, according to car dealers. Some said they have ‘stacks’ of letters from banks rejecting loan applications from potential customers.
Said Mr Glenn Tan, chief executive of Subaru agent MotorImage: ‘It’s not that (customers) don’t want to buy a car. We have the bookings, but some cannot get the financing.’
One dealer estimated that up to 40 per cent of applications are now being rejected, compared with 15 per cent before the financial crisis. Other dealers put the rejection rate at about 25 per cent.
Even those who have secured loans cannot get full financing; many institutions are only offering to bankroll at most 80 per cent or 90 per cent of a car’s purchase price, dealers said.
Mr Walter Koh, manager at Vertex Automobile, which sells China-made Chery cars, said customers are being rejected if their income is ‘$1 below the required level’. He has seen customers who earn good salaries being denied loans for even the most inexpensive cars, like the off-peak Chery QQ, which costs around $12,000. If spread out over a 10-year loan period at full financing, it would come up to only about $150 a month. ‘It seems hard for customers,’ said Mr Koh.
Some dealers also pointed out that loan applications are taking longer than usual to be processed. On average, it should take about three days, but for some, the process now lasts between 10 and 12 days.
Mr Richard Wan, general manager of TTS Chana Automobile, said banks are ‘really scrutinising’ new borrowers.
Some banks admit that the global economic crisis has dampened their borrowing. Many are cutting back on lending, despite a $2.3 billion injection from the Government to unfreeze credit markets.
GE Money, which specialises in car loans and personal loans, said that it was reducing its risk in this ‘tough environment’ in a number of ways, including tightening credit. Citibank and United Overseas Bank said that while they would continue to be prudent in their consumer credit assessment, those with a solid income and good credit records should not have problems getting an auto loan.
Economist David Cohen noted that many banks are likely being tighter with their credit, though some are loath to acknowledge it publicly.
‘Given the recession that Singapore is in and the weakening in the labour market conditions, banks are going to be more stringent in who they lend out money to because it is risky lending to consumers,’ said Mr Cohen, director of Asian economics forecasting at Action Economics.
The credit crunch is making some first-time car buyers nervous.
Civil servant Lim Chye Soon, 22, booked a new 1,500cc Toyota Vios. He made a loan application about two weeks ago after certificate of entitlement premiums hit a record low of $2. He had put a $10,000 down payment for his $31,000 off-peak car, and now needs a 70 per cent loan. ‘My main concern is it won’t be approved. If that’s the case, I’ll have to find more money to put down for the car.’
Meanwhile, wealthier buyers do not seem to be having the same problems. Performance Motors, which brings in the high-end BMWs, said it has not noticed any difference in its loan rejection rates.