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Citibank to shake-up car loans?

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CITIBANK is upending the traditional vehicle financing model here by pre-qualifying customers for car loans - thus bypassing the motor industry, which could lose millions of dollars in finance commissions if this practice is eventually adopted by other banks - PHOTO: AFP

 

18 Oct5:50 AM

Singapore

 

CITIBANK is upending the traditional vehicle financing model here by pre-qualifying customers for car loans - thus bypassing the motor industry, which could lose millions of dollars in finance commissions if this practice is eventually adopted by other banks.

 

Under the Citi Direct Car Loan model, customers apply online for vehicle financing and those who are successful receive in-principle approval. With this conditional approval for a loan of a specified amount, a prospective car buyer can shop for a car knowing he or she has already qualified for financing.

 

This is different from the current model where a new car buyer submits a loan application through the car company for the bank's approval. If the application is approved, the car company receives a finance commission from the bank, which can range from 1-2.5 per cent of the loan amount, depending on the quantum and tenure. Say, the average commission is 1.5 per cent and the average loan amount is S$100,000. For a top dealership selling 5,000 cars a year, with perhaps half of those purchases involving financing, the total commission could come to nearly S$4 million.

To make its loan scheme more attractive, Citibank is offering flat interest rates of between 1.48 and 1.88 per cent per annum - much less than the prevailing market rate of about 2.28-2.68 per cent.
Citi says its Direct Car Loan is a "no-frills service with no involvement of intermediaries, which in turn gives you the advantage of enjoying lower rates". At the same time, it is understood that the bank believes it is a more efficient and productive way of applying for vehicle financing.

If the Citi model catches on with other financial institutions, it could spell the end of a longstanding relationship with motor distributors as well as finance income.

 

But some car companies doubt that will happen. "Most distributors have a panel of banks they work with," says the managing director of a luxury dealership. "There are advantages to such tie-ups, the most important of which is customer convenience."

 

He explains that car salesmen take care of the nitty-gritty for the buyer - something the latter won't get if a bank wants to be independent and go direct to the customer.

 

"The salesman provides one-stop shopping," he adds. "If he doesn't do it, someone else will have to. So whatever is saved in commission may have to be paid out elsewhere."

 

The sales director of another luxury dealership agrees: "It is part and parcel of buying a car. Of course, the salesman gets a commission but the emphasis is on customer service. Certain processes are involved; it's not as straightforward as it looks."

Another factor working against the direct model is in-house financing, provided by the financial services arm of the manufacturer - something which all the German brands here have access to.

 

"The dealer can easily take advantage of this alternative to keep financing in-house," the sales director says.

He speculates that Citibank is rolling out this scheme because it wants to increase market share. The American bank is currently a small player in the vehicle financing market here, with DBS, OCBC and Hong Leong among the heavyweights. The latter three have tie-ups with most of the best-selling brands.

 

"It's a good idea but, ultimately, it will be difficult to dictate terms to motor dealers."

 

http://www.businesstimes.com.sg/transport/shake-up-ahead-for-car-loans

 

 

 

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This is good news for car buyers but when the car is being sold through the dealer, most of the time the buyer would have to "compensate" their loss in commission if you want to take your own loan... Same goes for the car insurance...

 

Unless all the banks adopt this, the dealers can still pre-add the potential commissions loss into the selling price...

 

End up still the same...

 

Of course this does not apply to buyers dealing with direct owners...

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Will never do business with CitiBank.....very bad experience but if other banks follow suit that will be a good way forward to cut off the middleman's commissions!

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The dealers will be upping the price by a few Ks if you not taking in-house loan. Lppl.

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This is good news for car buyers but when the car is being sold through the dealer, most of the time the buyer would have to "compensate" their loss in commission if you want to take your own loan... Same goes for the car insurance...

 

Unless all the banks adopt this, the dealers can still pre-add the potential commissions loss into the selling price...

 

End up still the same...

 

Of course this does not apply to buyers dealing with direct owners...

then one more factor to push COE north?

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then one more factor to push COE north?

 

Perhaps so... Overall buyers would be attracted by the much lower interest rates...

 

How would this be implemented and how will it fare? Will take some time to see...

 

I think for the moment the dealers will be keeping the application forms for Citibank in the store room...

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Unlikely to work cos if u pay full cash, they up the price by abt 1.5k to compensate for this loss. No loan thru them prob end up the same.

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car dealer is the KING

car buyer is the beggar

 

you want to buy without coe ... no sell

you want to buy without loan (pay full cash) ... up the price

you want to take less loan ... also up the price

you want to trade in ... knock your price

you want to buy pre-owned from AD ... pay a premium price

Edited by Wt_know
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car dealer is the KING

car buyer is the beggar

 

you want to buy without coe ... no sell

you want to buy without loan (pay full cash) ... up the price

you want to take less loan ... also up the price

you want to trade in ... knock your price

you want to buy pre-owned from AD ... pay a premium price

in USA and China, the rule is reverse,

car dealer is the Beggar

car buyer is the King [:p]

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ahemmm......we obviously know this product no use in MCF if ur name is Mr.Peh Foo Cash.

 

 

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ahemmm......we obviously know this product no use in MCF if ur name is Mr.Peh Foo Cash.

 

 

in Singapore how many % of Mr.Peh Foo Cash?

of coze among MCFers this % much higher [:p]

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What ever amount Citi approved for the car loan is still cap at max 60% of the car the buyer purchases.

So even if Citibank gives u 100k approval. Will u buy a car at say 180k and pay 80k cash in order to get the 100k loan quantum?

It's not that easy and straight forward. And i doubt it will take off.

 

LOL

 

 

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the car price is not fixed

let's say 2 person went into a showroom

pick the same model car, same color, same coe bidded

the selling price still can differ $3k to even $5k assuming the loan quantum is the same

the one paying extra $3k-$5k is fked by the SE

 

there is no transparency in the actual "transacted price" for each car

the dealer give all fkup excuse that depends on overtrade, depends on model, depends on promo, depends on loan, whatever fk excuse it is

i have been lucky once that i knew i bought cheaper and i have been sway once that i knew i bought sligher expensive kena chopped robert

Edited by Wt_know

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Might or might not work, but at least they are trying to offer an alternative.

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Citi's new car-loan deal sounds good - in theory
20141028_Citi_ST.jpg
Jamie Lee
The Business Times
Tuesday, Oct 28, 2014

Citibank's latest salvo in the car-loan business might seem like a valiant attempt to get rid of the middlemen on behalf of the customer. But the drive could hit the proverbial wall, given the powerful influence that car dealers wield in the car-loan market.

 

In a week's time, the bank will offer in-principle approval for a car loan to customers before they shop for a car. This deviates from the existing practice, under which car companies receive a commission from the bank in exchange for submitting a loan application on behalf of the car buyer.

 

Interest rates from Citi's latest offering start at 1.48 per cent, lower than the market rate, which typically has the value of the commission embedded.

 

As a comparison, OCBC - a major player in the car-loan market - is offering rates that start at 1.88 per cent per annum for new cars.

 

And, like OCBC, the other two big financial institutions in this market, DBS and Hong Leong Finance, offer rates of up to 2.6 per cent per annum.

 

Citi, with its 3 per cent market share, can afford to stir up a hornet's nest.

 

It has argued that consumers should be offered more choices, as other services - such as travel - have already done. So a car buyer can either take a bank loan that is more expensive but comes loaded with dealership freebies, or go with a no-frills direct loan.

 

That's true, in theory. And such a disruption, even as Citi shied from the label, has already been attempted with car insurance with direct sales.

 

But dealers hold the upper hand when it comes to car loans. There's nothing to stop dealers from sewing up exclusive tie-ups with certain banks. For example, BMW provides financing to its customers, but only through DBS.

While turning away buyers with direct-loan applications may be extreme, there's much dealers can do to discourage this.

Dealership freebies, usually offered to buyers who sign up for the full package, are not to be scoffed at. These can include vehicle servicing and huge discounts on cars, car players say.

 

The car market is tough - curbs on financing have led the car-loan market to shrink to about $9 billion as of August.

Still, the general upward trend of car certificate of entitlement (COE) premiums since May suggests enough buyers, and more could be drawn in when premiums float lower in the coming months as more COEs are expected.

So dealers can afford to shun direct-loan applications in favour of a buyer who would pay them a fee, industry sources say.

There are also other ways dealers can embed a lost commission into the overall car price, so consumers do not necessarily win with direct-loan arrangements.

 

Citi acknowledged that its relationship with dealers will change from here on, though its existing dealership partners have remained, for now. Other banks that are big players have stayed silent on the topic.

The bigger question is whether this could prompt more transparency in the car market, so consumers are more aware of the wheeling and dealing behind their purchases.

 

But this may require more regulations and banks, regardless of where they stand on car loans, are unlikely to lead the charge in this respect.

 

This article by The Business Times was published in MyPaper, a free, bilingual newspaper published by Singapore Press Holdings.

 

- See more at: http://business.asiaone.com/news/citis-new-car-loan-deal-sounds-good-theory#sthash.erfrZS8L.dpuf

 

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the bank is willing to write off the business in this area so they challenge the norm instead of trying to follow it.

If it works, they capture a market and expend from there. If it doesnt, they can slowly get out of that business altogether and put their resources somewhere else.

 

Yup, the best thing in business is to take charge than to just follow and follow.

Edited by Throttle2
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they can implement whatever they want ..even implement something like with 0% interest for 10 years , again it all boils down to whether can buyers come out 40 to 50% cold hard cash ...

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Actually it's simple which I'm just assuming now, please correct me if I'm wrong

 

Hyundai Elantra priced at $122,399 (as in one motoring record) when so many says it is not so expensive...

 

Theory: -

 

60% - $73,439

If "showroom" price - $91,399

 

Actual downpayment - $18,000 compared to $48,960... which is why some still die die can afford to buy new cars...

 

 

Edited by Carnoob
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