Let’s face it — in Singapore, cars are a financial black hole. Between the COE rollercoaster, taxes, and the cost of parking, the real price of owning one often goes far beyond the showroom sticker.
But here’s a financial move that sounds crazy at first: you can use your home to pay for your car.
Yes, I know — on the surface, the two seem unrelated. But when you look at the numbers, you’ll see a simple truth most people overlook. This strategy could save you five figures without changing a single thing about the car you drive or the number of years you take to pay it off.
The Interest Rate Trap Nobody Talks About
In today’s market, housing loan rates in Singapore are hovering around a cheap 2% p.a.
Car loans? You’re looking at a standard 2.78% p.a. or more.
But that small difference in numbers isn’t the whole story. The real trap lies in how the interest is calculated.
- Housing loans use reducing balance interest. You only pay interest on the outstanding loan amount each month. As you pay down the principal, your interest portion gets smaller and smaller. It’s fair.
- Car loans use simple interest. This is a penalty trap. You are charged interest upfront on the full loan amount for the entire loan period, regardless of how much you’ve already repaid.
That small 0.78% difference is a total lie. It’s amplified by a very unfair calculation.
The Real Cost: A $100K Car Loan Over 7 Years
Let’s break down a real example. Imagine you need a $100,000 loan for your car over 7 years.
| Loan Type | Interest Rate | Monthly Instalment | Total Interest Paid | Interest Difference |
| Housing Equity Loan | 2% (Reducing) | $1,285.70 | $7,999 | — |
| Car Loan | 2.78% (Simple) | $1,422.14 | $19,460 | $11,461 |
With the housing loan route, you save a staggering $11,461 in interest. That’s over eleven thousand dollars saved without driving a cheaper car, reducing your loan tenor, or changing a single thing about your lifestyle.
The Rule of 78 Penalty: The Sting in the Tail
Here’s where it gets even more painful for car loans.
Most people don’t keep their cars for the full 7-year loan period. Maybe you sell it at year 4 or 5. But with a car loan, there’s a nasty little formula called Rule 78.
Rule 78 front-loads the interest on your loan. This means:
- In the first few years, you’re paying mostly interest and very little principal.
- If you sell the car early, you’ve already paid most of the interest but still owe most of the principal.
- You don’t get a refund on the unused interest portion. It’s already baked into the payments you’ve made.
Compare that to a housing equity loan:
- Housing loans don’t use Rule 78.
- If you decide to sell your car after 4 years, you simply repay the remaining principal balance on your home loan.
- No hidden penalties. No losing thousands to “front-loaded” interest.
That flexibility means you can sell your car and move on without losing thousands to a penalty you didn’t even know existed.
A Word of Caution
This isn’t for everyone. To make this strategy work, you have to be smart and disciplined.
- You must own a private property with enough equity to borrow against.
- You need to be disciplined. Just because you have a longer loan tenor for your house, don’t drag out the car repayment. Pay it off on a schedule that matches your car’s lifespan.
- Be aware of lock-in periods. If you try to repay the loan during a lock-in period, you may face a penalty.
Done right, this is one of those financial strategies that feels almost unfair, because you’re playing by the rules, but you’re doing it better than the banks expect you to.
The next time you’re tempted to sign on the dotted line for a car loan, remember this. The interest rate and the way it’s calculated matter just as much as the COE number you’re obsessing over. And if your home can help you save over $11,000 without a penalty trap, the question isn’t why you should do it. It’s why wouldn’t you?
