Depreciation To Be Taken Into Account In Calculating Loan Limit

The Monetary Authority of Singapore (MAS) has announced that it will take into account depreciation when calculating the Open Market Value (OMV) of a used car to determine which tier the vehicle falls under with regard to the loan-to-value ratio.

According to MAS’ press release, “MAS will adopt a straight-line depreciation in the value of the original OMV over 120 months to derive an applicable OMV for purpose of determining the appropriate LTV ratio.”

For instance, a used car with an original OMV of $25,000 will actually have an applicable OMV of $17,292, assuming that the age of the car when the borrower buys it is 37 months. As such, the borrower qualifies for a car loan of 60 per cent of the purchase price.

See the illustration below:

Cars Original Date of Registration: 1st of January 2010
Date of Borrower’s Agreement of Purchase: 10 Feb 2013
Age of vehicle at point of purchase by borrower: 37 months.
Where the number of months left is 83 months (120 – 37)

For the purpose of determining the applicable LTV Limit:
Applicable OMV = OMV – [age of motor vehicle (in months) / 120 months x OMV]
= 25,000- [37/120 x 25,000]
= $17,292

As the applicable OMV is below $20,000, the LTV limit is 60%.