Take a S$120,000 car financed at the maximum 60 percent, on a 2.8 percent flat rate over the full 7 year tenure. The loan is 60 percent of S$120,000, which is S$72,000, leaving a S$48,000 down payment in cash. A flat rate charges interest on the full original loan every year regardless of how much you have repaid, so total interest is S$72,000 times 2.8 percent times 7 years, which is S$14,112.
The loan plus interest, S$86,112, is divided evenly across 84 months, giving a monthly repayment of about S$1,025. Because a flat rate ignores your shrinking balance, the true effective interest rate is roughly double the advertised 2.8 percent, closer to 5.2 percent. That is why car loans look cheap on paper but cost more than the headline rate suggests.
How it is calculated
The loan amount is the car price times the financing percentage, which MAS caps at 70 percent of price for vehicles with an Open Market Value of S$20,000 or below, and 60 percent above that. Car loans in Singapore use a flat interest method, so total interest is the loan times the flat rate times the number of years, charged on the full original sum the whole way through. The monthly repayment is the loan plus all the interest, divided evenly by the number of months, with the tenure capped at 7 years. Because the flat method ignores the falling balance, the effective annual rate on a reducing-balance basis is roughly double the flat figure, which is the number to compare against other forms of borrowing.
Frequently asked questions
How much can I borrow for a car?
MAS caps car loans at 60% of the purchase price for vehicles with an Open Market Value over S$20,000, or 70% for those at or below it, with a maximum tenure of 7 years. Car loans use a flat interest rate, so the effective rate is roughly double the advertised figure.
What is the difference between a flat rate and an effective interest rate?
A flat rate calculates interest on the full original loan amount every year, even as you repay the balance. An effective interest rate (EIR) reflects the true cost on the reducing balance. For a typical Singapore car loan at 2.8% flat, the EIR works out to around 5.1% to 5.4%. MAS requires lenders to disclose the EIR so you can compare car loans against personal loans or other credit.
Can I use CPF to pay for a car in Singapore?
No. CPF Ordinary Account savings can only be used for approved housing purchases, education, insurance premiums (such as Home Protection Scheme and Dependants Protection Scheme), and certain investments. CPF funds cannot be used to finance a vehicle purchase or to service car loan instalments. The down payment and monthly repayments must come from cash.
Is car loan interest tax-deductible in Singapore?
Generally no. IRAS does not allow individuals to deduct personal car loan interest against employment income. The exception is if the car is a company asset used wholly and exclusively for business purposes, in which case the company (not the individual) may claim a deduction. Private-use or mixed-use vehicles do not qualify for any tax relief under the Income Tax Act.