If you do decide to buy a car, the smart thing to do is to assess your long-term earning capacity, and to shop around for the best loan package that suits your budget.

There are several types of motor loans in the market, but the three most common ones presently are flat interest rates, flexi-loans, and balloon financing. Also popular with borrowers is the "step-up" loan, which works using the principle of gradual increased repayments.

The primary difference among the three loan schemes is the method of interest calculation. Both the flexi and balloon financing are based on a monthly rest basis. The flat interest rate is calculated on a fixed interest rate with one advance instalment.

The balloon scheme, the latest to have hit the motor loans sector, allows you more affordable instalments in the beginning with a lump sum to be paid at the end of the financing period.

All financial institutions offering motor loans work within the already established guideline of 70 per cent financing of the value of the vehicle, including COE, for a maximum of seven years.

It has been observed that the balloon or flexi loan schemes are preferred over the flat rate for the more expensive cars. This is because the difference in instalment payments is more substantial for these cars. Moreover, cars above $55,000 (excluding COE) are not protected by the Hire-Purchase Act which means instalments can vary each month (depending on the prime interest rates), while rebates on early repayment are not standardised (not governed by rule 78). The protection that the Hire-Purchase Act gives buyers of cars below $55,000 is predictability in a fixed number of instalments, specified amounts, and fixed interest rates.