Defaults in Car Loan Payments in Past 12 Months
Prime Minister's OfficeSpeakers
Summary
This question concerns car loan default rates and the practice of overtrading used cars raised by Mr Melvin Yong Yik Chye. Senior Minister Tharman Shanmugaratnam reported that in 2020, 64 borrowers or 0.03% defaulted on car loans, with 23 cases involving used cars at a 0.01% default rate. He detailed safeguards against financial imprudence, including financial institutions verifying car valuations through independent sources and conducting rigorous income and credit assessments. Senior Minister Tharman Shanmugaratnam stated that MAS is collaborating with government agencies to monitor car financing practices and may consider additional measures to ensure financial prudence. He concluded by urging consumers to exercise caution regarding overtrade offers and to ensure they can afford the long-term costs associated with car ownership and loan repayments.
Transcript
3 Mr Melvin Yong Yik Chye asked the Prime Minister (a) how many car loans have been defaulted in the past 12 months; (b) how many of these loans involved used cars; and (c) whether the Ministry will consider outlawing the practice of overtrade of used cars to encourage financial prudence in the purchase of cars.
Mr Tharman Shanmugaratnam (for the Prime Minister): In 2020, 64 or 0.03% of borrowers defaulted on car loans granted by financial institutions (FIs). Twenty-three of these loans were for the purchase of used cars, which translates to a default rate of 0.01%.
We understand the concern that car dealers’ practice of overtrade1 may result in financial imprudence. There are safeguards in place to mitigate this.
First, FIs will check if the purchase price of the car is reasonable, by referring to car valuations from multiple, independent sources.
Second, FIs conduct income and credit bureau checks on borrowers to assess their ability to service the car loans.
Third, MAS is also working with relevant Government agencies to monitor car financing and market conduct practices of FIs and non-MAS regulated entities like car dealers. Where practicable, we will consider additional measures to ensure consumers’ financial prudence.
We urge consumers to be cautious when car dealers offer overtrades. Before committing to a car purchase, consumers should consider their financial situation and ensure that they can afford the costs associated with ownership, including car loan repayments over the longer term.
Overtrade refers to car dealers' practice of offering a higher price when customers trade in their old cars, so as to entice them to make a new car purchase and take up a car loan. As this is an indirect discount to the purchase price of the new car, it will result in a higher car loan amount based on the inflated car purchase price.