Get better terms for your car loan

Dear Mr Tan,

Income only charges 1% on the prepayment amount for early redemption of car loan, whereas all other banks and car financing schemes in the market use the rule 78 to calculate the interest rebate plus 20% surchrage.

I think that the other financiers are rather unreasonable. At one stage there were some efforts to change this by CASE. Would you care to comment on this?

W

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Dear W

We try to be competitive and fair in our loans, including the prepayment fee.

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Dear Mr Tan

Although the car loan from Income is competitive, most car distributors package the car prices in such a way that the selling price is lower if the customer take up a loan with one of their so called in-house finance provided by the banks.

The consumer may end up paying a higher car price by not takin the in-house finance. I saw the following announcement in your website.

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14 May 2004
NTUC Income offers a better deal on car loans

MEDIA RELEASE

NTUC Income recognises that the Rule of 78 puts the borrower of a car loan at a disadvantage when he redeems his loan earlier. We support the proposal by the Consumer Association of Singapore to change the system.

If the borrower wishes to redeem a car loan from us earlier, we compute the interest on the loan based on the daily balance. The borrower pays the exact amount of interest calculated at the effective rate, and is not penalised for early redemption of the loan.

Under the Rule of 78, the interest is not spread out evenly over the loan period. A person pays more interest at the start of the loan. About three-quarters of the interest are charged during the first half of the loan period. As a result, the outstanding amount reduces more slowly.

Chief Executive Officer Tan Kin Lian says: "Our computation of interest based on daily balance is fairer than the Rule of 78. We also adopt a flexible approach and allow the borrower to make bigger or accelerated repayment of the loan, if he has additional funds. This allows him to reduce his interest burden."
Here is an example of a motorist who takes a car loan for $70,000 repayable over eight years at 2.35 percent interest.

The total amount of interest is $13,160. If the borrower redeems the loan after three years, the balance payable under the rule of 78 can be as much as $47,837.
If the loan was taken from NTUC Income, it would have been computed on daily balance. The balance payable after 3 years is $46,463. The motorist saves $1,374.