The crippling debt that came with buying his car made owning one an irony – he had a car but could not afford to drive it.
Adam (not his real name, as he spoke on condition of anonymity), maxed out at least 12 credit cards and six credit lines, chalking up about $50,000 in debt – just to pay for the loan instalments and other essentials required to maintain a car.
The 32-year-old civil servant said it was the worst mistake of his life.
He bought a new off-peak hatchback in 2007 for $60,000. At that time, he was earning $2,300 a month.
By having a car, he thought a life of status and comfort awaited him.
But all he got in return was half a decade of “living hell”.
“It was hell, really a living hell being in so much debt,” he said.
“I was living comfortably before that, with some excess cash from my salary. I already had a big bike then, but I wanted more. I wanted a status symbol.”
He was attracted by the fact that he did not have to place a down payment. Plus, he would get a $5,000 cash-back from the $60,000 loan the car package offered.
Adam signed a few forms and was soon driving off in his new car.
But within three months, when the money from the cash-back was depleted, he realised just how much of a mess he was in.
“It was a terrible mistake, a decision that I regretted almost immediately,” he said.
“It wasn’t just the $600 monthly instalments, but the petrol, parking, insurance and other hidden costs, which came up to about $1,000 a month.”
Unable to pay up, he depended on credit cards and lines, opening accounts with six banks just to have enough money for his daily expenses.
Paying for his wedding in 2011 added to his debt, and his honeymoon was spent bitterly answering calls from the banks chasing him for payment.
He said: “I could not sleep. The banks kept calling and the first few months of my marriage were rough. I had many arguments with my wife.”
His wife told TNP that she too had her own debt and it was only after the first few months of their marriage that they discovered more about each other’s financial troubles.
“I remember that during our honeymoon, we kept receiving calls from the bank and it really affected the mood,” said the 31-year-old.
“Later on we couldn’t really spend on a lot of things. Going out wasn’t even an option.”
TOO MUCH TO BEAR
For Adam, the debt became too much to bear and the car became little more than a display piece as he could no longer afford to drive it around.
“I ended up paying so much for something I seldom even used,” he said.
“I took out loans and credit lines to pay the bills, and ended up having to live on just $50 a month for two years after all my essential expenditures.
“It was like covering a hole only to dig another one over and over again.”
He would get by with just one meal a day and even that meal was a homecooked one.
“If I really had to eat out with my friends, I would eat at home first before going,” he said.
“I would then use the excuse that I’d already eaten at home, which was true.”
He added that this drove him to take up even more loans from the banks.
“It was very hard to survive on that kind of amount monthly, which drove me to withdraw and use money that I did not have and did not belong to me,” he said.
“It made it worse, to the point that I got blacklisted by the banks.”
But there is a silver lining to his story.
At his lowest point, in 2012, he turned to Credit Counselling Singapore (CCS) for help, and they helped him get back on his feet.
CCS helped him by drawing up a debt management plan and negotiating with the banks.
He has since started to pay off his debt slowly through instalments, but he has had to change his lifestyle drastically.
“CCS helped me a lot, and I was able to save about $400 a month after that,” he said.
“That allowed me to breathe and get back on my feet.”
He sold his car in 2012, and is on track to clearing his debt by the end of next year.
Adam has become so traumatised by the experience that he said he will never buy a car again.
“I’ve done the calculations, and actually for me, taking a taxi every day is cheaper than getting a car,” he said.
“So why would I ever want to get a car again?”
He advises those who are tempted to buy a car now because it seems cheaper to carefully reconsider.
“If you really must have a car, then make sure you write down your calculations and understand your financial situation,” he said.
“If you don’t need it, then don’t get it. Going through hell just for a status symbol is not worth it.”
She struggled with car loan after switching jobs
She chalked up more than $50,000 in debt after buying a car.
Jane (not her real name) bought a $54,000 three-year-old sedan in 2011, taking a 100 per cent loan on the full price of the car.
The 29-year-old facilities manager said she bought the car as she needed it for her job then, and could “still afford it at that time”.
To pay off the monthly instalments and additional expenses which came to about $1,300 a month, Jane used a $1,000 allowance from her employer, on top of her $2,000 salary.
But she forgot to fully consider these costs when she switched jobs.
Her new job did not provide her with as generous an allowance, and she started to struggle with payments.
“One can’t stay in the same job forever,” she said.
“But just two years after I bought the car and changed jobs, the banks started calling and coming to my home.”
It came to a point where she stopped eating meals regularly, just so that she would have enough money to pay her bills.
But that was not enough.
“My new salary just could not sustain my expenses and the car, and I had to use four or five credit cards and lines,” she said.
She turned to Credit Counselling Singapore (CCS) in 2013 after she found herself more than $50,000 in debt, and has since been able to finance her debt regularly.
Jane said: “I have become more prudent with my money, and I am now looking for a new car.
“I think the lesson here is that if you want to buy a car, get one that is within your means.
“Planning your finances is very important.”
Thinking of buying a car? Do this first
- Draw up a budget before making a decision.
- Ensure that all expenses are listed down realistically.
- If take-home income is more than monthly expenses, ask if it is enough to pay for the car instalment and all auxiliary expenses.
- Do not underestimate the maintenance cost of having a car.
- Recognise that having a car may mean not having enough money left for other financial goals, such as setting up an emergency fund and holidays.
- There is often still a car loan shortfall even after the car has been sold off.
- Chances are, by owning a car, other expenses may also go up.
Source: Credit Counselling Singapore (CCS)
Changes in car loans
The Monetary Authority of Singapore (MAS) has made several changes to car loan rules in recent years.
Before February 2013
100 per cent loan that was to be repaid over 10 years.
February 2013
Restrictions on car loans were introduced, limiting loans to a maximum of 60 per cent of purchase price, which was to be repaid in five years.
These restrictions were introduced in an attempt to cool the market.
However, this was followed by a period of reprieve in April to June that year, following appeals from used-car dealers who saw a drastic decline in sales.
The 60-day reprieve adopted the prior rules, but was limited to cars that were registered before March 2013, allowing some of the backlog of used cars to be sold.
Last month
MAS announced an easing of loan guidelines, allowing buyers to borrow up to 70 per cent of the purchase price, to be repaid within seven years.
This has caused a surge in demand for new cars, with the certificate of entitlement (COE) premiums rising about 10 per cent for each category, hitting a six-month high in the first week of this month.
This article was first published on June 20, 2016.
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