Reply to Parliamentary Question on Defaults in Car Loan Payments and the Practice of Overtrade
QUESTION NO 708
NOTICE PAPER 402 OF 2021
FOR WRITTEN ANSWER
Date: For Parliament Sitting on 10 May 2021
Name and Constituency of Member of Parliament
Mr Melvin Yong Yik Chye, MP, Radin Mas SMC
To ask the Prime Minister (a) how many car loans have been defaulted in the past 12 months; (b) how many of these loans involved used cars; and (c) whether the Ministry will consider outlawing the practice of overtrade of used cars to encourage financial prudence in the purchase of cars.
Answer by Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS:
1. In 2020, 64 or 0.03% of borrowers defaulted on car loans granted by financial institutions (FIs). 23 of these loans were for the purchase of used cars, which translates to a default rate of 0.01%.
2. We understand the concern that car dealers’ practice of overtradeOvertrade refers to car dealers’ practice of offering a higher price when customers trade in their old cars, so as to entice them to make a new car purchase and take up a car loan. As this is an indirect discount to the purchase price of the new car, it will result in a higher car loan amount based on the inflated car purchase price. may result in financial imprudence. There are safeguards in place to mitigate this.
3. First, FIs will check if the purchase price of the car is reasonable, by referring to car valuations from multiple, independent sources.
4. Second, FIs conduct income and credit bureau checks on borrowers to assess their ability to service the car loans.
5. Third, MAS is also working with relevant government agencies to monitor car financing and market conduct practices of FIs and non-MAS regulated entities like car dealers. Where practicable, we will consider additional measures to ensure consumers’ financial prudence.
6. We urge consumers to be cautious when car dealers offer overtrades. Before committing to a car purchase, consumers should consider their financial situation and ensure that they can afford the costs associated with ownership, including car loan repayments over the longer term.