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Watch Out For That Car Loan

>> Monday, October 31, 2011

A recent article showed that the average car loan size has risen to $85,000. And I am pretty sure property loan sizes are also on the rise due to higher prices. Not surprising, loan tenures are also increasing to the maximum allowable length. This represents that affordability is being stretched to the maximum. Though some may argue that it is due to low interest rates that it makes economical sense to maximize the loan, but there is good debt and there is bad debt. This loan is on a depreciating asset, it falls in the bad debt category.

When times are good, everything is rosy, it is easy to get complacent and take on debt bigger than one can chew just for that instant gratification. However, this is going to be a huge concern when a down turn occurs. Most will experience serious cash flow problems as these loans are not going to disappear when one loses their income. Selling the car off may result in further financial problems when prices are depressed and being penalised for early repayment, a lump sum top up settlement will be required. Conversely, to carry on using the car will be subject to increasing cost of ownership like ballooning insurance premiums, higher road tax, costly petrol and expensive parking charges.

I believe this is a terrible time to be purchasing a car with soaring COE premiums. Anyway, the circle line has fully opened and public transportation is increasingly becoming convienent. Now, with the aid of the bus arrival timing app, combined with distance based fare, bus lane, buses give way box, planning the least waiting time bus route is possible. In fact, recently, with the constant heavy rains, traffic on roads seem to reach a crawl frequently. Flooding has also become a real risk in Singapore.

Stay safe and take care.

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