First time buying a car? Here’s what to know about loans

No question owning a car is a significant milestone in one’s life. It indicates growth, stability, and independence to choose comfort and convenience. The same is true for every Filipino car buyer out there. Here, we’d like to give a special mention to the ones living in the north and south of the metro, travelling regularly via the expressway, and the ones living in areas with no public transportation network - for such individuals, a car eases their life substantially.

While deciding which car to buy is a struggle in itself, finding the right financing option is a whole different story altogether. While some buyers prefer to pay for the car fully in cash, let us be real: not everyone has the means to do so. And that’s the reason why many Filipinos take the help of auto loans to fulfil their dream of becoming a car owner.

Now that you are thinking about getting an auto loan, several questions will start popping into your head, like who to contact, what lending options are available, whether there is a basic salary requirement, what documents will be required, etc.

Worry not, as we are here to help you in this entire process of buying your first car and getting a loan.

So, without any delay, let’s get started.

Auto loan - Understanding the basics

An auto loan is a simple and legal way to finance a car/vehicle; therefore, it is also called car financing or vehicle financing.

What is an auto loan? It is a structured way to buy a vehicle. Rather than making a hefty one-time payment, the buyers pay monthly instalments over time.

The auto loan, therefore, is a great option for car buyers without disposable cash in hand.

Auto loan: Getting to know the working

Like before buying a car, it’s a good idea to learn how to drive; it is advisable to have a basic understanding of how an auto loan works. Why? It will give you a better understanding of the deal you are about to commit to, help you negotiate better, might get to better loan terms, and help you choose the right loan provider out of the lot.

Also Read: Important financial terms a car buyer must know

Auto loan & its working -

• Auto loans in the Philippines are offered by banks and financial institutions that will lend you money to make the big purchase.
• The total loan amount is divided into monthly payments that are made over a period of time, thus making the purchase more manageable. Note that the monthly payment also includes interest and some processing fees; the only exception is a  zero down payment loan.
• The only thing you need to pay upfront for the release of the purchased unit is the down payment, which is equivalent to a certain percentage of the loan amount.

It is to be noted that, unlike personal loans, in an auto loan, the car is considered collateral, meaning that it is at risk of repossession if you default on your monthly payments.

Also Read: Top 15 banks for affordable car loans in the Philippines

Auto loan: Know the providers

Where should you head to get an auto loan in the Philippines? When it comes to car financing, there are multiple options available, like banks, in-house financing, and non-bank financial institutions. The table below gives brief information about the same.

Bank financing	A popular choice among car buyers. The bank offers loans to buyers at competitive interest rates and flexible terms. As for requirements, the bank requires you to submit proper income documentation and have a good credit score. It is the best option for borrowers with a pretty solid record. The approval process is long compared to other options; also, the loan application disapproval rate is high here. Banks that offer auto loans include Bank of Philippine Islands, Banco de Oro, Philippine National Bank, Rizal Commercial Banking Corporation, Metrobank, Union Bank, and Security Bank, to name a few.
Dealership financing	Also known as in-house financing, this is a very convenient method of buying a car. As everything from car selection to finance is taken care of in one place, under one roof. Clients can expect quick approval and less stringent requirements.  While the down payment is low and interest rates are high.
Non-banking Financial Institution	A flexible alternative to traditional financing options, it caters to a wide range of applicants.  It provides tailored loan options, competitive rates, and flexible terms.

Also Read: Bank vs Dealer Financing: Which is better for Filipino car buyers?

Other than the above-mentioned options, a prospective buyer can also take out personal loans ( offers flexible terms and competitive interest rates) and bank loans (high interest rate with fast approval and flexibility).

Tips for getting an auto loan -

• Get quotations from different banks; this way, you are in a position to negotiate the interest rates.
• Do consider the bank where you already have an account; chances are you get a favourable deal and fast approval.
• To check the specific requirements, don’t rely on loose information; instead, check the bank’s auto loan pages.
• Use self-assessment forms and loan calculators provided by banks to assess your eligibility for an auto loan.
• In case you have a history of unpaid debts, late payments, or loan defaults, get ready to face rejection from the banks. Therefore, before applying for a loan, get your credit score checked.

Also Read: From loan to keys, your complete guide to car financing in the Philippines

Auto loan: Learning about the eligibility requirements

Banks and non-banking financial institutions have certain pre-defined criteria when it comes to the approval of loan applications. Why? This ensures that the bank, the individual they are lending money to, falls within the safety net and won’t default. While different banks have different requirements, there are some common parameters found among all, including age, credit score, income, and employment status.

Also Read: Car financing solutions for buyers with bad credit in the Philippines

Age	At least 21 years and not more than 65 years; some banks have a ceiling of 70 years or need a co-borrower under 65
Documents	Completely filled-out application form Alien Certificate of Registration with Work Permit (for foreigners) Marriage contract (if applicable)
Government-approved valid ID	Photocopy of one valid ID like - PhilSys ID / Digital ID / Printed ePhilID / Digital National ID Driver’s license Passport UMID
Personal information (must have)	Mobile number  Residence or office landline

Auto loan: Income proof requirements

A lender needs to assess the financial stability of the applicant, as it is the only way to determine his/her capacity to repay the loan. Therefore, depending on the bank and loan amount, the applicant must have a stable income with a minimum salary threshold. Further, banks favour applicants with at least one year of stable employment with regular income.

Below are the key income documents required for banks -

Locally employed individuals	Latest income tax return or BIR Form 2316 Last three months' payslips Certificate of employment with income (COEI)
Self-employed individuals or business owners	Last two years audited financial statements - Photocopy Latest Income Tax return Last six months bank statement or passbook - Photocopy  Business background/company profile Certificate of business registration from DTI or SEC, or articles of partnership, or articles of incorporation
OFW	Payslips or remittance receipts for three months Authenticated employment contract

Also Read: Car loans made simple for OFWs: Everything you need to know

Auto loan & minimum monthly income

In the Philippines, different banks have varying minimum monthly household incomes to qualify for an auto loan. Upon checking the websites of several banks, here’s the information we were able to gather on minimum monthly income requirements -

Bank	Min. monthly income
BPI Auto Loan	PHP 30,000
BDO Auto Loan	PHP 50,000
RCBC	PHP 40,000
Metro Bank	PHP 40,000

It is to be noted that the minimum monthly income usually refers to the combined household or family income. So, if you live in the same household as your parents or spouse, you are in luck.

Auto loan: Key factors to consider

Loan terms & interest rates

Banks offer different loan terms and interest rates that you need to consider. Different rates are offered by banks, including fixed rates (remain the same throughout the loan term) and variable rates (change as per market condition,leads to fluctuating monthly payments).

Loan duration

It refers to the number of years you’ll end up paying the monthly payment to the bank or financial institution. Mostly, it ranges from 12 to 60 months or 1 to 5 years.

Downpayment

It refers to the initial payment paid towards the car before the auto loan kicks in. In the Philippines, it is typically between 15% to 30% of the car’s total price.

Monthly amortization

Before committing to a loan, it is important to calculate the monthly amortisation (instalment). Why? To ensure that the amount fits well within your budget.

Hidden fees

Before signing the loan contract, make sure to have a good look at all the hidden fees. It will prepare you for such expenses in advance.

Also Read: Car loan scams in the Philippines: Applicants, be aware

Bottom line

If you are a first-time car buyer, then you should know that securing an auto loan is a big financial commitment that requires you to have a stable income source to be able to pay off the monthly payments for the next few years. In addition, we’d advise you to have a look at the actual cost of car ownership (which includes fuel, maintenance, insurance, registration, parking, and repair) so that you can manage your finances easily and prepare a budget if needed.

Also Read: Car Loan Restructure: Everything a Filipino needs to know before applying