Hong Leong Finance first to cut interest rate, putting pressure on other lenders
By Christopher Tan 11 September 2009
After a relatively quiet six to nine months, a car loan war may be brewing.
Hong Leong Finance, in a tie-up with various car distributors such as Borneo Motors and Performance Motors, fired a salvo yesterday by bringing the interest rate for new cars down to 2.22 per cent - from 2.5 per cent previously.
‘It is the most competitive rate in the market at the moment,’ its spokesman Gerry de Silva said yesterday.
According to checks by The Straits Times, prevailing rates of loans disbursed jointly with car distributors hover between 2.45 and 2.5 per cent, offered by institutions such as United Overseas Bank, Citibank, Maybank, OCBC and DBS Bank.
Given the size of the vehicle market, observers said Hong Leong’s move will trigger a response from the other lenders.
Citibank Singapore head of auto business Alan Chen said: ‘If we want to do business, we will have to match. And we will be matching soon.’ Citibank’s current rate with a distributor is 2.5 per cent.
Motor traders are noticing heightened activity among lenders. ‘Banks are beginning to come out with deals every two to three weeks now,’ noted Mr. Vincent Ng, product manager at Honda distributor Kah Motor. ‘This is because the car market is smaller this year, and could get smaller.’
He noted that cashback offers - borrowers are given cash on top of the loan they take - are also back.
Motor traders point out that the bolder stance comes on the back of rising Certificate of Entitlement (COE) premiums as well. As COE rates go up, the car’s residual value goes up, reducing the exposure of lenders should there be a default.
Renewed competition in the car loan market comes on the heels of a similar trend in the frenzied property market, where cheap loans are fuelling buying. That comes on the back of governments across the region reining in interest rates to boost lending and liquidity in the face of the economic crisis.
Car loan providers which are not tied to any distributor have also cut rates. GE Money’s offer is now 2.8 per cent, versus 3.88 per cent previously. Hong Leong Finance’s walk-in rate - for borrowers not buying from the dealerships it has tied up with - is 3.2 per cent.
And BMW Financial Services, the only car manufacturer-owned lender active here, is offering 2.5 per cent on loans for Minis and selected BMWs - down from 2.68 per cent previously.
Still, car dealers said borrowers need to look beyond interest rates when shopping for the best deal. For instance, DBS’ 2.5 per cent seems relatively high, but borrowers face a less severe penalty for early settlement than lenders who use the so-called Rule of 78 to calculate the penalty. The Rule of 78 is a method of allocating a loan’s interest and principal, which affects the level of rebate when a borrower settles a loan early.
In the case of Hong Leong Finance’s offer of 2.22 per cent, the finance house is going with the Rule of 78 formula, but offering a 20 per cent discount.
1 comment:
Car loan war around the corner
Hong Leong Finance first to cut interest rate, putting pressure on other lenders
By Christopher Tan
11 September 2009
After a relatively quiet six to nine months, a car loan war may be brewing.
Hong Leong Finance, in a tie-up with various car distributors such as Borneo Motors and Performance Motors, fired a salvo yesterday by bringing the interest rate for new cars down to 2.22 per cent - from 2.5 per cent previously.
‘It is the most competitive rate in the market at the moment,’ its spokesman Gerry de Silva said yesterday.
According to checks by The Straits Times, prevailing rates of loans disbursed jointly with car distributors hover between 2.45 and 2.5 per cent, offered by institutions such as United Overseas Bank, Citibank, Maybank, OCBC and DBS Bank.
Given the size of the vehicle market, observers said Hong Leong’s move will trigger a response from the other lenders.
Citibank Singapore head of auto business Alan Chen said: ‘If we want to do business, we will have to match. And we will be matching soon.’ Citibank’s current rate with a distributor is 2.5 per cent.
Motor traders are noticing heightened activity among lenders. ‘Banks are beginning to come out with deals every two to three weeks now,’ noted Mr. Vincent Ng, product manager at Honda distributor Kah Motor. ‘This is because the car market is smaller this year, and could get smaller.’
He noted that cashback offers - borrowers are given cash on top of the loan they take - are also back.
Motor traders point out that the bolder stance comes on the back of rising Certificate of Entitlement (COE) premiums as well. As COE rates go up, the car’s residual value goes up, reducing the exposure of lenders should there be a default.
Renewed competition in the car loan market comes on the heels of a similar trend in the frenzied property market, where cheap loans are fuelling buying. That comes on the back of governments across the region reining in interest rates to boost lending and liquidity in the face of the economic crisis.
Car loan providers which are not tied to any distributor have also cut rates. GE Money’s offer is now 2.8 per cent, versus 3.88 per cent previously. Hong Leong Finance’s walk-in rate - for borrowers not buying from the dealerships it has tied up with - is 3.2 per cent.
And BMW Financial Services, the only car manufacturer-owned lender active here, is offering 2.5 per cent on loans for Minis and selected BMWs - down from 2.68 per cent previously.
Still, car dealers said borrowers need to look beyond interest rates when shopping for the best deal. For instance, DBS’ 2.5 per cent seems relatively high, but borrowers face a less severe penalty for early settlement than lenders who use the so-called Rule of 78 to calculate the penalty. The Rule of 78 is a method of allocating a loan’s interest and principal, which affects the level of rebate when a borrower settles a loan early.
In the case of Hong Leong Finance’s offer of 2.22 per cent, the finance house is going with the Rule of 78 formula, but offering a 20 per cent discount.
Post a Comment