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While today’s awful traffic and soaring gas prices will probably make first-time car buyers hesitate, it’s undeniable that owning a car has its benefits.
And if you’re thinking of buying one through a loan, you’re in luck, because this article will show you the ins and outs of getting a car loan in the Philippines.
What is a Car Loan
A car loan means getting car financing through a lender. Essentially, you borrow money to pay for the car.
In return for the money lent to you, you pay back the money plus interest on a regular basis. If you fail to make payments, the vehicle will be repossessed.
Who can get a car loan
In general, here are the minimum eligibility requirements for people looking to get a car loan:
- A Filipino Citizen between 21 to 65 years old.
- Monthly income of at least 30,000 (varies depending on the lender)
- Has proof of income (Employee – Min of 2 years with company; Self-Employed – At least 2 years of profitable operation)
- OFWs and foreigners can avail of an auto loan via a guarantor or co-maker (Filipino)
Different Types of Car Loan
Here are different ways you can get financing for your car loan.
1. Bank Car Loan
The bank will pay for the car. You’ll be paying the bank in return plus interest. Helps if you already have a good credit standing with them. They typically require a 20% downpayment.
2. Dealer Car Loan
Utilizing their in-house financing scheme, you buy the car directly from the dealer. Some dealers have partner lenders instead for financing your loan. They’re the ones who offer those low DP “All-in” packages you see on malls.
3. Through Cooperatives or Credit Unions
Some cooperatives or credit unions offer car financing to their members. The gist of it is the same, they’ll pay for your car while you pay them back plus interest.
4. Personal Lease
In this setup, the lender buys the car and leases it to the borrower. The borrower will then pay for it in fixed monthly payments (borrower will shoulder maintenance and repair).
Once the lease expires, the borrower will be given the option to return, refinance or own the car by buying it (pays the remaining balance).
Note that the lender is the listed owner of the car, and can only be changed should the borrower wish to buy it at the end of the lease.
Car Loan (Bank) vs Car Loan (Dealer Financing)
According to experts, getting a car loan through a bank should net you a lower interest rate versus dealer financing.
However, they have a more stringent process of approval and usually requires a minimum downpayment of 20%.
So if you don’t have the cash for a 20% DP upfront, you can get a car loan through dealer financing instead.
However, they tend to have slightly higher interest rates too and the lower initial cash out means higher monthly payments.
Make sure to consider your current and future financial situation before choosing either option.
Note that you also have to consider fuel and regular maintenance costs so it’s important to choose a financing scheme that will accommodate these comfortably into your monthly budget.
What to consider before getting a car loan
The following are based on what I learned and used when I bought a car through bank financing.
1. Decide which car fits your budget and needs
Buying a car can be an emotional thing for some. To me, however, it was completely for utilitarian purposes.
A few months into our marriage, we decided to get a car purely for convenience purposes, plus we agreed it was a good way of “investing” our money into something that will be truly useful especially when we decide to have a child.
Here’s the reason why I want to highlight choosing a car that fits your budget and needs: A few months after getting a car, my wife got pregnant.
Good thing we chose something that was well within our budget and allowed for any unforeseen expenses that might come up. If we’ve chosen something more expensive, we’ve probably had a hard time paying for it.
I’m no finance expert, but I think this principle of having enough wiggle room when it comes to paying for something holds true even on less expensive purchases.
Why make it hard for yourself in the long run (and potentially have the car repossessed) when you can pick something that you can pay for easily?
2. Choose between bank or dealership financing (the big picture)
I ended up getting a car loan through a bank mainly because of these reasons:
- The interest rate was lower compared to dealership offerings I looked at during that time (lower monthly payments)
- It (the bank) was one of the most popular when it comes to auto-loans
- We had a friend working there who can help us with the whole process
Obviously, these reasons are unique to me. It’s what I thought was best at that time when we were deciding to choose a financing scheme. And that’s the whole point.
Taking your current (and future) situation into consideration, which method will work best? There’s really no right or wrong answer when it comes to choosing between these two.
Some will prefer the lower upfront payment of dealership offerings. Some might prefer banks simply because they have an account there already.
Bottom line is, whatever reason you might have, make sure you’ll choose something that suits your overall financial strategy well.
3. Researching on the best deals
Before deciding on a financing scheme, I read and asked a lot about the whole process of buying a car.
It helps in avoiding common pitfalls, getting valuable advice, and comparing offerings from both dealership and banks.
In the end, I was able to pick a car loan that provided everything I looked for and can easily accomplish.
Car Loan Requirements & Checklists
On this section, we’ll show you a quick checklist of things you need to have and do to ensure a smooth approval process for your car loan.
- Get pre-approved
- Review all required documentation and paperwork from the lender’s site
- Review the loan terms and details
- Decide on a car that fits your needs and budget
- Decide on a loan term that you can comfortably accomplish
- Contact the lender for any additional details or requirements
- Prepare all necessary documents
- Complete and submit all requirements (online and physical paperwork)
Requirements needed for a bank car loan
- Duly accomplished Application Form (spouse needs to sign if, with co-borrower or co-mortgagor, a separate application form is needed)
- 2 valid Gov’t-issued IDs
- Proof of billing
- Income Documents:
- Employed: COE, ITR
- Self-Employed: ITR, Audited Financial Statements, Statement of Business Registration with DTI, Bank statements, Photocopy of Passbook (last 3 months), Proof of other income
- OFW: COE, Proof of monthly remittances, Latest Crew Contract (for seafarer/seaman)
Requirements needed for non-bank (dealer) car loan
- Employee: 2 Gov’t-issued IDs, COE, Company ID, Proof of billing
- Self-Employed: 2 Gov’t-issued IDs, Business Registration, Latest ITR w/ Audited Financial Statement, Mayor’s permit
- OFW: COE, Proof of monthly remittances, Latest Crew Contract (for seafarer/seaman)
Banks that offer Car Loans (Comparison Table)
Click on each link to visit the bank’s official car loan calculator
*Figures are applicable to brand new cars
Auto Loan Calculator for Dealerships
Dealerships typically have a simpler approach when it comes to estimating loan terms. Depending on their website, you’ll see something similar to the below.
Tips on getting approved
While applying for a car loan is a relatively straightforward process, there are some things that can actually affect your chances of getting approved.
Read on to learn about it and how to avoid them.
1. Open a bank account
Your goal is to show that you have sufficient funds and income to pay for the loan.
It could also help in getting approval faster especially if you’re applying for an auto loan with the same bank you have a savings account with.
2. Have a clean credit history
Having debt and unpaid credit is a big no-no.
Will you lend money to someone who has tons of debt? That’s right, you wouldn’t. Same goes for banks and dealers.
They take risks in lending money to people hence the stringent process. Should you have existing debt, it would be advisable to pay them off prior to applying for a car loan.
You’ll have a better chance of approval when the lender sees you have no existing debt or show proof of your ability to pay.
3. Don’t switch jobs prior to applying for a car loan
Stay at least 2 years with your current employer if you want better chances of getting approved for an auto loan.
Why? Because lenders want to show you have a stable source of income.
They would prefer to lend money to someone who worked for the company for years over someone who just started.
If you don’t have a savings or credit account with a bank, lenders will rely heavily on your employment history to gauge if you are financially able to cover the costs of the loan on a monthly basis.
4. Prepare all necessary documents beforehand
It’s always good to be prepared. The last thing you want to happen is to get declined simply because you lack a specific document or proof. Be smart, review our checklists of requirements above or better yet, ask your lender directly.
It will save you from a lot of headaches later.
5. Be honest with your financials
There’s nothing good that will come out of lying about your financial status or capacity.
Even if you get approved, you’ll still end up as the loser in the end if you fail to pay the monthly amortization because they’ll just take your car back.
It’s just not worth it. You might even end up facing legal consequences if you are not truthful in your financials.
6. Get advice from people who already got approved
When I was planning on getting a car loan, I asked people who already did the same thing.
More often than not, they’ll give you recommendations and show you the do’s and don’ts when applying for a car loan.
I also checked online, read feedback from FB Groups, forums, etc., while not all advice is valuable, it will give you insight on some of the most common things to consider before applying.
Steps on How to Get a Car Loan in the Philippines
The following are based on my own experience in getting a car loan and through researching online sources.
Step 1: Decide on the car you want to own
We all have a “dream car” in mind. In reality, however, we can only get the one we can afford. And that’s fine, really. With tons of models available at each price point, there’s no better time than now when it comes to car choices.
My only recommendation?
Get something that you’ll be able to pay without sacrificing other important stuff. Sure, you may have the financial capability to pay 25,000 a month for that SUV.
But if you’ll be cutting back too much on other elements in your budget, it’s not a smart strategy.
Or some money on the side for trips and recreational activities?
Give yourself some breathing room so you can easily clear your loan without any problems.
Step 2: Choose between Bank or Dealer Financing
Refer back to our “Car Loan (Bank) versus Car Loan (Dealer)” section above for pros and cons of each. You’ll have to consider your personal preferences when it comes to choosing a lender.
You might prefer bank financing maybe because you already have a good credit standing with a particular bank thus increasing your chances.
Or you might go straight to the dealership since you were able to score a better deal with bonuses.
No matter which method it will be, just make sure it’s the one where you’re most comfortable with and provides you with the best bang for your buck.
Step 3: Pick the right loan term
When we bought our first car, we decided on choosing a 3-year term instead of 5 years since we’ll be paying less overall in terms of interest plus we’ll own the car faster.
We considered our financial capacity first to confirm if paying X amount per month is sustainable for the next 3 years, with some wiggle room of course.
The key takeaway here is to make sure you’re getting a loan term that suits your situation best (financial capacity and length of term considered).
Step 4: Shop around and compare rates
We compared rates and packages across different auto loan offerings from banks when we decided to get a car.
I remember writing all these stuff down on several pages of yellow pad paper.
Why I did not simply use Excel beats the hell out of me (I think I missed writing by hand).
By doing this step, I had a better picture of what’s available and what’s within our budget.
It’s actually enjoyable (at least for me) since it’s all about looking for the best deal for your money, it’s almost like a challenge.
Step 5: Apply for the Car Loan
Actual steps may vary depending on which lender you decided on (bank or dealer) but in general, the steps are the same.
It will be provided on the lender’s website so all documents and requirements to be submitted will be clearly laid out for you.
On our case, we used the bank’s online service to initialize the process. For the actual submission of documents, we made a couple of calls and visits to the person handling our case at the bank.
Step 6: Make sure you understand the terms of the loan
Do your due diligence when it comes to reading the terms and agreement of your loan.
If you have any questions or need any clarification, don’t hesitate to contact your lender.
Doing this early will help avoid any issues later if a particular condition or clause in the agreement does not sit with you well.
Step 7: Pick the most convenient way of payment
Getting a car loan through our bank made making monthly payments a breeze.
They simply deducted the payments from our savings account. We just fund the account on a regular basis and do nothing else, literally. And with the rise of cashless payments, making bank deposits and payments even got easier.
By keeping the process of payments easy, you reduce the chances of missing out on them and incurring a penalty.
Frequently Asked Questions on Getting a Car Loan
How long do you have to wait for approval?
Based on my own experience, it probably took a day or two to get approval from the bank after the initial online application.
The actual process of submitting paperwork and discussing the loan with the bank’s registered agent usually takes a week or two, depending on the lender’s own process and policies.
Reasons to get you possibly rejected and what to do to avoid it
- Not meeting eligibility requirements – Before anything else, make sure to check the lender’s website for this one. Some offer a “Pre-Qualification” step on their site, use it to determine if you’ll be eligible for a car loan.
- If you have a bad credit score – Lenders do their due diligence too in determining if a potential customer can pay the monthly amortization. One way of finding out is through your financials. If they see that you have a bad credit rating, they’ll probably reject your application since it shows that you are not able to pay existing debt.
- The absence of stable income – This is why they ask for your Certificate of Employment and ITR (for employees) and documentation showing proof of financial capacity (for self-employed). They want to know if you are someone able to pay on a regular basis. If they see that you tend to change employers a lot, for example, it can negatively affect your chances since they’ll take that to mean that your source of cash flow is not stable.
- Fraud – Or falsification of documents on your application. Just don’t. It ain’t worth it. They’ll likely find out and could spell trouble for you that may even result to criminal charges.
- You move a lot – If you change addresses often, it can also negatively impact your chances. Why? Because lenders prefer to deal with people who show stability and consistency both in their financials and personal background. Think about it, if you’re a lender and the borrower is someone who moves around often, will you trust them with your money? While this is probably a minor consideration, it’s still a possible cause of rejection.
- Incomplete and inconsistent information – Just complete all requirements and save yourself all the trouble of going back and forth with your lender. The last thing you want to happen is not to get the approval simply because you were too lazy and careless with the requirements.
We hope this guide has been helpful.
What about you? Do you have any experiences or advice you want to share with other readers when it comes to buying a car? We’d love to hear it.
Hit the comment section below!