Last week came as a blow to Singaporeans seeking to buy cars. Already faced with high Certificate of Entitlement (COE) prices, the Monetary Authority of Singapore (MAS) placed a cap on motor vehicle loans effective February 26. The new rules lowers the percentage of loan one can take and the tenure of the loan as well.

For a car with open market value (OMV) that does not exceed $20,000, the maximum loan-to-value is 60% of the purchase price, including relevant taxes and COE. For cars with OMV of more than $20,000, which includes most cars in the market, maximum loan will be capped at 50%. This means a bigger cash downpayment.

In addition, the tenure of a motor vehicle loan will be capped at five years max. These new financing restrictions does not apply to loans for the purchase of commercial vehicles or motorcycles.

“The financing restrictions are necessary to encourage financial prudence among buyers of motor vehicles. In this prolonged environment of very low interest rates, there is greater risk of buyers over-extending themselves on motor vehicles,” the MAS said in a statement.

This is in contrast to the situation in Malaysia, where carmakers are dangling whatever possible to lure the punter – cash rebates, 0% interest rates, freebies, free service package and accessories, you name it. The “over-extending themselves” situation MAS mentions is true in many Malaysian households thanks to easy and cheap loans. Do you think the knot should be tightened in Malaysia?