Saturday, March 23, 2013

Loans




  
    I've been reading so much about the changing financial landscape for housing and cars. While it's clear that the housing market will likely face additional drastic regulations, I'm actually surprised by some of the criticisms arising from the new regulations for cars.

    Due to my general lack of financial know-how, before the new regulations, I didn't actually know how cars were bought or financed. I'm actually mind-boggled that people could take 100% loans to buy cars previously. To me, taking only a 50 or 60% loan on a car makes prudent financial sense. While I can understand that a 5 year loan will be a hefty burden and many would prefer it to be 10 years, I can also agree with the starting point that people should then only take a quantum of loan within a budget that they can manage within 5 years.

   I've seen more than my fair share of bankruptcy applications and a lot of them comes from credit card debts - inability to pay car loans, or too many of those deferred payments from Courts (buy your applications now and pay later!).

   In fact, when I was younger, I was truly surprised that people bought stuff now and paid for them later. We were all in the red - and this was normal, even ideal. You make your money work for you that way - if your loan interest rate is lower than inflation, because your money would just sit wasting in the bank. Of course, this is only true if the good that you bought would increase in value at a higher rate than the interest rate over time, or at the very least, not lose value.

    This is clearly not true in the case of cars. While there are cases where someone buys a car at an incredibly low COE rate, hence what he paid for his car is lesser than what is the current market price - a car is undoubtedly in the category of goods in which it loses value as soon as it is used.

    Perhaps, I may seem harsh, but I can't feel sympathetic to all these newspaper reports of "victims" who now cannot afford their dream cars because of the "harsh" new financial regulations. I wonder if Singaporeans really think about how they consume and their debt to income ratio, or they believe interest rates will always remain so low.

    We must always pay in the end for what we spend.

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