5 Facts About Overtrading Your Car In Singapore

Steven added, “The other thing is that, don’t forget, although you get a 30k overtrade from your used car, the invoice value of the new car you are purchasing is still 250k. The loan is still based on 250k.”

“They may set a requirement that you have to have a certain loan percentage in order to get that overtrade, such as a minimum loan of 50%. 50% of 250k and 50% of 220k is very different!”

“So what I experience is a lot of end users are very happy, but actually the 30k is coming out of your new car’s price – your pockets.”

“That is number one. Number two is that, a lot of times, people who want to change cars get stuck with financial issues.”

“They can’t afford to buy a new car because their current car is worth say 20k, but the outstanding loan is 30k. To change to a new car, they have to first come out with 10k to settle the loan. A lot of people can’t come up with the additional cash, so they are stuck with their old cars.”

“Again, for the agent to entice you to change, they give you an overtrade. Your car is worth 20k right, the outstanding is 10k, I take in your car at 30k so there’s an additional 10k for you to settle your outstanding loan.”

But where did the extra 10k come from?

Steven said, “In this case, that 10k additional did not actually come from the dealers’ margin. What they did was they increased the selling price of the new car. So they increased the loan amount.”

“Some people, because they want to change, they think that’s okay. But technically again, that is your money – your future money.”

“So all these are things that a lot of times buyers don’t realise. They just see what they have now and not what they don’t have in the future. So how does it affect them in the future?” asked Steven.

“Because the loan payments are still within their affordable range - I wouldn’t say comfortable - they go ahead. But what they don’t realise is that they are paying more. They are taking up a bigger portion loan, so they are paying more interest, higher instalments.”

“Unfortunately with Singapore’s policies and rules, cars usually only depreciate. And the sad thing is that they depreciate faster than you can repay the loan. That’s how people end up selling their cars and still have to fork out money to repay outstanding financing,” concluded Steven.

I was starting to understand. Factor in that the car’s price (and hence the loan amount) is already higher than it has to be because of your overtrade, and you’ll see an even bigger gap between the car’s actual value, and what you might still owe to the bank after 5 years.

And that’s a cost that car owners do not often add to depreciation, making it a ‘hidden’ cost if you want to get rid of your old car for a new one.

Something to consider this weekend when you go shopping at the dealerships, perhaps?

(And if you are thinking of selling your car but not sure to sell it yourself or to a used car dealer, Steven has some tips for you as well, over here.)

Credits: