What the new MAS rules for car loans mean in $ terms?

ASSI has many blog posts on the ownership of cars in Singapore. A few of these are about the cooling measures implemented by the government to inject some financial prudence into those looking to buy a car.

Of course, there were people unhappy with the cooling measures but I feel that it is like taking medicine. It probably doesn't taste good but if we need it, we should take it because it is going to make us better. 

For those who need to take a loan to buy the car they want, not buying the car is probably going to make them financially healthier. I don't think that is a bad thing.

Anyway, for whatever reason, the government has decided to make it easier for people to buy cars in Singapore now. Notice I did not use the word "own" because as long as the car is not fully paid for, we don't own it. We get to use it but we don't own it.

So, what are the changes? 

Car buyers are allowed to borrow up to 70% of the asking price (for cars with OMV of $20,000 or less) and for up to 7 years instead of only 5 years.

I have previously said that we should try to keep the loan figure to a maximum of $20,000 and the loan period to a maximum of 3 years if we absolutely need a car and if we absolutely must take a loan. This keeps the cost of financing minimal.

Assuming a price tag of $100,000 for a car, the new rules allow a $70,000 loan to be repaid over 7 years!

What does this mean?

Previously, in another blog post, I said:

... if a person were to buy a $100,000 car and if he were to take a loan for $50,000 at an interest rate of 2.5% per annum for a period of 5 years, he would be paying $1,250 x 5 = $6,250 in interest...

Now, this same person could borrow $70,000 and assuming the same interest rate of 2.5% per annum but for a period of 7 years, he would be paying $1,750 x 7 = $12,250 in interest. 

Financing cost will almost double! 

The more we borrow, the longer we take to repay, the more we pay in interest to the lender.

How is that not wealth destructive?

To take loans to pay for consumption (home renovation, furniture and home appliances are a few examples that come to mind) is generally unwise. 

Cars are very expensive and rapidly depreciating items in Singapore. To take a loan to purchase a car in Singapore because we want one is without any doubt most unwise.

Related posts:
1. Car dealers unhappy with LTA.
2. Car loans are different from home loans.

A step towards achieving ZEN as an investor.

We are probably familiar with a similarity between fishing as a hobby and investing in stocks which is  that both require patience. 

What about gardening? 

I believe it requires plenty of patience too especially if we decide to grow plants from seeds.

I decided to grow Sunflowers from seeds recently and here are some photos taken over the last one week with the last one being the most recent:

Gardening not only requires patience but also understanding and accepting that some seeds are bad and will never germinate. 

No matter how good a gardener we are, this is something we have to accept.

As long as we have more good seeds than bad ones, we should be happy.

How does this tie in with investing in stocks?

Hint:

"In this business, if you're good, you're right six times out of ten. 

"You're never going to be right nine times out of ten." - Peter Lynch





Related posts:
1. Investing or gardening...?
2. Know our goals...
3. How to have peace of mind as investors?

A reader's insights into AK the investor.

An email from a reader:

There are many articles - both new and old - recently that you've been sharing recently on saving money that I feel are definitely useful to the general public. 

With regards to investing, I now understand not only how to screen stocks better but also why you stop blogging about your nibbles and what you have invested in.

Entry and exit points are partly dependent on each person's financial capabilities because we don't know how Mr Market is gonna swing the next second. 

Also, maybe, you don't wanna be held accountable for other people's orders (but really though, why are they following your steps when they probably can't tank the next drop and average down; a good stock on the slide = greater value = higher dividend yield). 

After all, it's their own money and not AK's. So, they should really take care of the downside for I always believe the upside will take care of itself.

But having said that, I also understand why some are not investing or give up investing altogether after a while. The incremental numbers they see are probably smaller due to the fact that they are not hugely invested.

Whenever you blog about your quarterly dividends from REITs, I'm sure your blog's traffic spikes because everyone must be thinking, 

"Wow, if only I had that kinda money for me!" 

A fantasy?

But do they have the temperament to act like AK when everyone is looking away from a gloomy market?

The more important but sensitive question is, what did AK do to amass such amounts at the start and yet not spend it but invest it instead? 

Related posts:
1. How did AK create a 6 digits passive income?
2. Buffett and Munger don't like to pay full prices.
"... bet heavily when the odds are extremely favourable, using resources available as a result of prudence and patience in the past," Charlie Munger.