6. Should you choose the highest car loan available?

The advice from most financial experts is buyers should fork out a higher down payment if they can afford to, so as to reduce the amount of interest they have to pay.

This means that even if you can get a car loan of up to 100 per cent of the purchase price, do not go for it.

7. Find out the 'effective' loan interest rate

While it might make sense to take up a car loan, experts point out that many buyers are not aware that the 'effective' or real interest rate of a car loan works out to be higher than the published loan interest rate.

For example, a loan amount of $40,000 over seven years at a 2.5 per cent interest rate attracts an effective rate of about 4.8 per cent per annum.

This is because interest is payable on the original principal and not on a reducing principal, Mr Leong of Providend pointed out.

8. Check around for suitable loan packages

Loan packages vary, so buyers should take their time to suss out good deals.

The current economic climate has led to slower car sales, so car distributors are hungry for customers.

Market observers noted that current loan packages are about 3.35 per cent for a one- to six-year loan package and 3.5 per cent for a seven- to 10-year loan package.

At some car distributors, cash rebates are being offered when you take up a loan.

For instance, Malayan Motors, which distributes Jaguars and Bentleys, offers a cash rebate of 8 per cent of the loan. This means that for a $100,000 car loan, you will get $8,000 in cash.

At Kah Motor, the cash rebate is based on 30 per cent of the total loan interest. This works out to a $5,000 cash rebate for a $70,000 loan with a seven-year tenure.

However, consumers who wish to enjoy cash rebates should be aware that they have to refund the entire rebate if they wish to redeem their loans fully within the first two years. Loan interest rates for packages tied with cash rebates are also higher.

At Malayan Motors and Kah Motor, the cash rebate package comes with a higher 3.5 per cent per annum interest rate and a longer loan tenure of seven years and above.

On the other hand, those who do not wish to take the offer of a cash rebate can enjoy a lower interest rate of 2.28 per cent per annum at Malayan Motors and 2.2 per cent per annum at Kah Motor.

The latter offers 100 per cent financing, while Malayan Motors offers financing for up to 95 per cent of the cost of the car, subject to the bank's approval.

The bottom line: The choice of a suitable loan package depends on what you are comfortable paying each month.

9. What if you are an existing car owner - should you sell your car to get a new one?

Ms Tan said you should compare the depreciation of your current car and the terms of your current car loan to those of the new car you are considering.

Check the amount of outstanding loan payable, the resale price of your car and do your sums. Do note that new cars are also under warranty and maintenance costs tend to be lower.

In addition, Ms Neo suggested checking your existing car's COE and scrap rebate. The latter is also known as the Preferential Additional Registration Fee (Parf) rebate and it is the sum your existing car can fetch when it is de-registered.

'If the existing car has high COE and Parf rebates, which will translate into higher resale value of the car, it may be worthwhile to consider selling it off and switching to a new car,' she said.

You can check your rebates at the Land Transport Authority (LTA) website, www.onemotoring.com.sg by clicking on 'LTA e-Services', then 'online enquiries' and then 'Parf/COE rebate' and keying in the required information.

A higher resale value means you have more to channel towards the down payment of the new car.

Another factor to consider is the higher running cost of your existing car - due to lower petrol efficiency, higher servicing or maintenance costs and higher parts replacement costs due to wear and tear - compared to that of a new car.

However, it is generally not worthwhile switching to a new car if the existing car is less than a year old. As it is still very new, it would normally be within the warranty period of three years and running and maintenance costs will generally not be high. You won't enjoy much savings by switching.

10. Find out your new car's potential COE rebate

Singapore Vehicle Traders Association president Neo Nam Heng said consumers should be aware that if their new cars came with a $2 COE, the refund on the COE five years down the road will only be half that, or $1.

This applies even if the dealer has sold you a car that comes with an Open Category COE - which can be used for any vehicle type - of about $6,000.

This is because the LTA will base the rebate on the $2 COE, which is the lower of the two premiums.

'It is better to wait for the next COE bidding and bid for the actual Category A, so there will be no confusion leading to any potential disputes with your dealers,' he advised.

This article was first published in The Straits Times on November 30, 2008.