How to buy a car with a 90% loan… legally

singapore car loans

The Private-Hire Purchase scheme from Cycle & Carriage could turn your car into an income-generating asset, with 90% loans payable over 10 years

  • 10 percent downpayment/90 pecent loans are now available
  • Loan tenure of up to 10 years instead of 7 years
  • So-called Private-Hire Purchase scheme from C&C for Citroën, Kia and Mitsubishi models

SINGAPORE — What’s the next best thing to owning a car? As things go in Singapore, the answer might well be: owning a company that owns one.

Some car dealers have begun to roll out loans built around that structure, which offers two tantalising prospects: bypassing the 30 to 40 percent downpayment needed to finance a new car, and using the car as an income-generating asset that pays for itself.

Here’s what you need to know:

What’s the deal in a nutshell?
Basically, you start a company that is set up to own private-hire cars. A bank lends that company the money to buy a car. The company lets you drive it.

cycle carriage php singapore car loan

Why bother?
To finance a car these days, you have to come up with 30 percent of its purchase price for a downpayment, or even 40 percent if the car’s Open Market Value exceeds $20,000. You have to pay the rest back in seven years.

This private-hire stuff lets you bypass that, and finance companies are offering 90 percent loans (meaning your down payment is 10 percent) and a 10-year tenure.

How about some examples?
Cycle & Carriage is probably the biggest car dealer to offer the scheme, and calls it Private-Hire Purchase. It’s available for Citroën, Kia and Mitsubishi models, so let’s take a Kia K3 Forte EX for an example: it retails for $95,999 with COE.

Under a normal loan the downpayment is $28,800, with a monthly repayment of $945. With PHP, the downpayment is $9,600, and the balance comes to $1,007 a month for 10 years.

kia k3 forte singapore

Wait, why is the monthly payment higher?
Two reasons: you’re borrowing more (90 percent, remember?), and the interest rate is slightly higher — 3.98 percent for PHP versus 2.58 percent for the regular loan.

Isn’t this just a way for the cash-poor to tiptoe around the 30 percent hurdle?
Well, Goldbell Financial Services (which is writing the loans for C&C) will still assess your creditworthiness, so it’s not like just anyone could use PHP to merrily make the leap from bus to car. In fact, C&C says that PHP is actually for the financially savvy.

How so?
One property agent we spoke to (who did not want to give his name) bought a Kia Carens 1.7 CRDi under PHP in July, and says he didn’t want to tie up his cash in a 30 percent downpayment. He feels he could easily earn a 10 to 15 percent return with it elsewhere. Also, PHP has allowed his Kia to pay for itself.

OK, now I’m interested. How does a Kia pay for itself?
The agent drives for Uber in his spare time. The Kia’s loan costs around $45 a day to service, so three trips and he’s done. That said, a property agent’s hours are flexible — after dropping the kids off at school, and between property viewings, he’ll pick up a paying customer.

So this is just something for Uber drivers
You could use it to finance your Uber or Grab car, yes, but if you have flexi work hours (or none at all), PHP could work for you. That means insurance agents, salesmen, housewives, retirees and so on could benefit.

What are the downsides?
Apart from the steeper interest, the other downside is that insurance will cost more; insurers assume that hire cars spend more time on the road and are riskier as a result.

But all costs of running the car can be expensed. Fuel, insurance, loan payments, servicing and repairs are all legitimate expenses. On the flipside, if your car makes a profit, you pay taxes on it. Seems fair to us.

Isn’t it simpler just to rent a car?
Many Uber and Grab people do that, but it’s actually cheaper this way. Renting a Kia K3 from Lion City Rentals (an Uber-linked company) costs $68 a day, but financing it with PHP works out to $34 per day — plus you build equity in the car as you pay down your loan. At the end of the day, this is really about a different way to buy a car that makes it legal for you to generate income with it.

kia carens diesel singapore reviewIsn’t the paperwork a hassle?
The set-up part shouldn’t be, anyway. C&C and other dealers who offer this kind of financing say they also help customers with all the paperwork. Besides, there’s one important advantage of using an investment vehicle to own an actual vehicle.

Which is?
Housing loans. When banks calculate how much you can borrow to buy a property, they look at something called the Total Debt Servicing Ratio, which requires them to take into account how much you’re paying for a car loan.

But strictly speaking, the PHP structure means your company owes money for the car, so it doesn’t impact your own TDSR.

For every $1,000 in car debt you service every month, you could actually be denying yourself nearly $300,000 in a housing loan.

Woah, that’s a lot!
It is. But it’s worth repeatng that PHP shouldn’t be used to evade the 30 percent downpayment requirement and gorge yourself on debt.

Instead, if you have flexible working hours and can drive for Uber or Grab, you can use the income to pay off what is essentially your personal car. And if you have better things to do with cash, you don’t have to tie it up with a down payment.

If any of that make sense to you, owning a company that owns a car might turn out to be better than owning a car yourself, after all.

about the author

Leow Ju-Len
Leow Ju-Len is a lot older than he behaves. He's been writing about cars for 23 years. Someday he might do it coherently. Ju-Len believes in world peace and V8s, but not necessarily in that order.