Pasalo Car Financing: How it works & what to watch out for

Are you thinking of buying a new car? Sure, it is good to fulfill your dreams and enjoy the perks of owning a car, like the convenience of running daily errands or going on a weekend getaway with family and friends. However, are you concerned about the financial side of things? Broadly speaking, there are a few well-known ways of owning a car, including -

• Paying fully in cash, given that you have a big fat account at your disposal with no concerns about future emergencies or expenses. This one is favoured for its affordability, as it is interest-free; you only pay for what you buy.
• Financing via a bank, given that you can afford to pay the down payment, which is usually 10-20% of the car’s value. Here, you’ll be required to pay interest along with the principal amount over a fixed period.
• In-house financing, a preferable option when you need the car asap; it's quick and simple. However, here, you won’t be able to build credit as the loan is in the company’s name, not yours.

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

Wait, that’s not all, there’s one more less-popular car financing option that is now gaining some limelight - it is called pasalo or assume balance for a car. Confused, you aren’t able to make out what it means. Well, on the face of it, it might look a bit confusing, but with the right know-how, you’ll know how it is a great car financing option.

Intrigued? Continue to read, and by the end of it, you’ll be through with the concept of pasalo or assuming the balance of a car.

So, let’s begin…

Understanding the pasalo or assume balance for a car

What is a pasalo or assume balance? In the Philippines, pasalo or assume balance for a car is an alternative way of car financing. The process involves the buyer taking over the remaining auto loan balance from the seller.

 

Such a situation often arises when the existing owner of the car isn’t able to pay for the loan anymore and decides to sell. The buyer, therefore, is required to pay the remaining loan balance to the bank.

Note that for Pasalo car transactions to be legally binding in the Philippines, it is essential to get the lender’s approval. If the deal is done without a green signal from the lender, it could lead to complications like repossession of the vehicle.

Also Read: Car repossessed? Here’s how you can finance your next purchase

Pasalo or Assume Balance for a car: Parties involved

To fully understand the Pasalo way of financing a car, it is important to first know the parties involved in this particular transaction. Typically, there are three parties involved in the process -

• The seller
• The buyer
• The lender, mostly a bank

Pasalo or Assume Balance for a car: Understanding the working

Let us now learn the working of the pasalo car owing process. Typically, before anything is done or said, the seller first needs to seek permission from the bank or the lending company. Why? It is legally required, as the loan agreement usually has a condition stating that the borrower can’t pass the loan to a third party without prior consent from the bank.

What if the bank denies permission?

In such a case, the borrower/seller will either cancel the transaction or still rescue despite the prohibition from the bank/lender. In the first case, there is no pasalo deal, period. However, in the second case, the seller/borrower is at risk of car repossession by the bank as a measure to safeguard the loan amount.

What if the bank agrees?

In this scenario, the original car owner/seller will be able to sell his/her car to the third party. However, the buyer is required to pay the seller a specific amount before gaining the right to pay-off the balance loan amount. Usually, this amount equals the amount already paid by the seller, including the monthly payments and the down payment.

Also Read: Understanding Balloon Payment: A flexible financing option for Filipino buyers

Pasalo or Assume Balance for a car: Key steps involved

Now that you have the basic knowledge of the working of the Pasalo process, it’s now time to check out the key steps involved -

Getting approval from the lender

The first key step is to get permission from the bank or lending institution from which the auto loan will come. This step is very crucial from the pasalo process to work as most loans come with a non-transferable clause that cannot be waived without the lender’s consent.

Buyer-seller negotiation

Once the approval is granted by the bank/lender, it is time to negotiate terms with the buyer. The discussion mostly is about the amount the buyer will pay to the seller, which usually comes down to the down payment made and the monthly installments paid by the seller against the vehicle. There is a clear understanding that, moving forward, the buyer will be taking care of the monthly payments against the auto loan.

Legal work

Post negotiation, both parties (seller and buyer) are required to sign a ‘Deed of Sale of Motor Vehicle with Assumption of Mortgage’. This will not only formalize the agreement but will also safeguard their interests.

Loan payments by the buyer

With everything sorted, the buyer will go on making the monthly payments as agreed and, other than that, enjoy his/her new ride.

Also Read: Pitfalls to avoid when refinancing auto loans in the Philippines

Pasalo or Assume Balance for a car: Step-by-step guide (for a buyer)

Wanna purchase a car via the pasalo process, the guide breaks down the process for you in four easy steps.

Step 1. Investigate the seller thoroughly

It doesn’t matter if the car seller is a friend, relative, or an acquaintance; what’s essential is to look into their background. There is no scope for default, as you are putting in a big chunk of money in the deal.

Step 2. Go through the car loan contract

Once you are sure about the genuineness of the seller, it is now time to do the same for the car loan contract. Ask the seller to present the contract and look out for a clause that restricts him/her from transferring the loan to a third-party. If you find one, ask the seller to show the written consent from the bank/lender wherein they waive this clause. Make sure to cross-check the letter with the bank to prevent any fraud.

Step 3. Get your documents ready

The seller needs documents to assume the balance for a car. The list includes valid ID proof (passport, UMID, postal ID, etc), proof of billing, NBI clearance, etc.

Step 4. Make the required payment

It is now time to make the agreed-upon payment to the seller; you can do the same via cash, online transfer, or other legal methods. Also, by this time, you should have a Deed of Sale of Motor Vehicle with Assumption of Mortgage; it serves as evidence that the vehicle and the condition associated with it are passed on to you, the buyer.

Pasalo or Assume Balance for a Car: Advantages & Disadvantages

Let us now discuss the pros and cons associated with Pasalo car financing in the country.

Advantages Affordable - Such cars are usually priced low, as the seller is eager to get rid of the loan obligation lingering over his/her head. Thus, it is an excellent opportunity for the buyer to get a low-priced car - compared to a brand-new or even a used unit in some cases. Favorable loan terms - The buyer will benefit from favorable loan terms; for instance, the interest rate will be lower than what’s usually offered. Getting a comparatively new car - Usually, Pasalo cars are only a few years old, meaning the buyer gets to enjoy a fairly new car at a fraction of the unit's original price. It’s a steal deal, given that the seller is a responsible driver.

Disadvantages Fraud deals - The buyer needs to stay cautious of scammers who do not reveal the actual status of the car loan. For instance, they might be behind payments or scam the buyer with falsified documents. Overly used unit or one with hidden damages - If you are out there to buy a pasalo car, make sure to check the unit thoroughly before finalizing the deal. As everyone is not a meticulous owner and you may end up with a misused car. Inspect the car properly, as there might be damage or issues the seller is not disclosing. Repossessed car - Some sellers sell their car when it is on the verge of repossession. If you buy such a unit, chances are the bank will soon seize it from you.

Pasalo or Assume Balance for a car: Alternative options for a seller

Aren’t able to cope-up with the monthly payments and are thinking about selling the car? While selling via Pasalo car is an option but there’s still a way to retain the car and pay off the loan. What’s that? The alternative solution comes in the form of Car Loan Takeout.

What is Car Loan Takeout? This particular financial instrument allows the car owner (who is unable to manage the monthly payments) to refinance the existing auto loan, which will result in lower monthly payments. The result is - rearranged loan terms - reduced interest rate & reduced loan period/term, and car ownership is retained.

Bottom line

Assume balance for a car or Pasalo car is a great unconventional, and legal way to buy a car in the Philippines. While the car is second-hand, with a meticulous seller backing, the buyer can catch hold of a car that’s fairly brand-new at a much lower price and interest rate. However, it is not a fool-proof, goody-goody deal; one needs to be cautious of scamsters with shaky deals.

Also Read: Lease vs. Buy: Which car financing option fits your budget?