When getting a car loan, one of the terms you are likely to come across is Loan-to-Value (LTV) Ratio. While it is a common term in financing loans, car buyers in Singapore should pay special attention to LTV ratios.
What is the LTV ratio, and how do you get the best possible LTV ratio for your car in Singapore? Read on to find out!
WHAT IS THE LTV RATIO
LTV ratio is the amount of loan provided as a percentage of the purchase price of the asset. In automotive terms, a car LTV ratio is the percentage of the loan you take for the price of a car. Depending on your credit risk and the type of car you purchase, the LTV ratio offered will vary.
LTV RATIO IN SINGAPORE
While you may want the highest LTV possible, Singapore has strict rules and limits for Motor Vehicle Loans. According to the Monetary Authority of Singapore, maximum limits apply to anyone applying for financing for new or used vehicles.
This was introduced in 2016 to encourage financial prudence in consumers and car dealers. Below are the LTV financial restrictions for cars:
OMV* of motor vehicle
|Maximum LTV||Maximum loan tenure|
|Less than or equal to $20,000||70%||7 years|
|More than $20,000||60%||
*OMV: Open Market Value
Hence, for those applying for a car loan in Singapore: you can only get a maximum LTV of 70% over a span of 7 years.
HOW TO CALCULATE LTV RATIO
Calculating your LTV ratio is simple. All you need to do is divide your loan amount by the price of your car. For instance, if you want to take a loan of $30,000 for a used car priced at $60,000:
Loan Amount ÷ Car Purchase Price = LTV
Loan Amount: $30,000
Car Purchase Price: $60,000
GET BETTER LTV RATIO
To get better interest rates on your LTV ratio, increase the down-payment for your car. That way, financial institutions and in-house loan providers are willing to provide you with lower interest rates! With better interest rates, you can make greater savings on your vehicle in the long-run.
If you are short on cash, you can increase your LTV ratio by improving your credit score. You can check your credit score with the Credit Bureau of Singapore (CBS) using the available options here. Improve your credit score by consolidating debts, paying loans punctually, and closing credit lines that you do not use anymore. With a better credit score, loan providers are more willing to offer you a higher LTV ratio.