Top can loan tips for 2025

Are you planning to buy a new car in 2025? Congratulations to you in advance. However, we’d like to offer you some advice to make your car-buying journey smooth and relaxed. Ask any car owner about the hardships of bringing home a four-wheeled commuter, and he/she will open up like anything. The long list of hurdles one most probably faces include -

• Setting a budget (in a way that you don’t incur any financial stress in long run)
• Deciding between a new & old car, petrol & diesel, manual & automatic, or do you want to invest in an EV
• Which car financing option do  you like to opt
• Planning monthly payments
• Taking care of regular maintenance and services

…and the list will go on.

In the past, we have covered several articles guiding both new and used car buyers through different aspects of the pre- and post-purchase journey. But this one compiles all the information so that you can take a quick look and move on to fulfilling your dreams in 2025.

Here are a few simple guidelines to follow to make your car-buying journey as uncomplicated as possible. Plus , it’ll help you save a few extra bucks.

Tip 1: Set a budget, a realistic one, please

We often ask car buyers to set a budget before heading to a dealership, as it will help them analyze how much they can afford. But there’s a catch, people don’t know how to set a budget. It is not just about how much money you can spare for a car - as a downpayment and monthly payments. There are a few additional costs to consider while setting a budget, including -

• Maintenance: To keep your vehicle running in good shape and for its longevity, it is essential to get it serviced regularly.
• Insurance: To drive a car in the Philippines, a car owner must get the vehicle insured, and with it comes the annual premium cost that varies as per the car’s model and owner's driving history.
• Fuel cost: Fuel cost is a recurring expense that a car owner has to incur and given the surge in fuel prices this particular expense bothers a lot. The vehicle’s fuel efficiency and your daily average driving distance will give an estimate of this expense.
• Parking & toll: An urban commuter must consider recurring expenses like parking and tolls.

Finding it difficult to calculate your car budget? Here’s a formula to help -

Car Budget = (Annual Net Income - Annual Total Expense) * Years to Pay + Down Payment

Example -

If a prospective car owner’s annual income is PHP 600,000 and his/her annual expenses account for PHP 450,000. This means PHP 150,000 is the amount that can be allocated towards the car budget. Just multiply it by the number of years you plan to finance the car loan, and to that amoun,t add the down payment amount. And there you have it, your car budget.

These days, there are free online budget calculators available at just a click of a button. Enter the required information, and there you have i:t the required figure. Also, such tools allow you to visualise how different loan terms and down payment impacts the overall budget.

Tip 2: Research different financing options

Want to finance your car? There are several ways to do so, each with its own set of pros and cons. The list includes -

• Bank Financing
• Dealership Financing
• Credit Card
• Home Equity Loan
• Upfront Cash Payment

Let us discuss each one by one.

Car Financing Options	Definition	Pros	Cons
Bank Financing	The bank lends a specific amount for buying a car that is to be paid back via a series of monthly payments for a fixed period.	A better option for purchases that require a higher loan amount Low interest rate	Loan approval takes time Higher down payment requirement
Dealership Financing	A convenient option where a car buyer can purchase and fund the car under the same roof.	Easy, fast, and convenient lending option Often, freebies are part of the deal Negotiation is possible Low down payment	Higher interest rates Hidden charges  Overall higher financing cost
Credit Card	Car buyers use credit cards to pay for the car, given that the card limit is high enough.	Card owner earns thousands of credit card points, cashback, or miles	High interest rate Negative impact on credit score
Home Equity Loan	It enables car buyers to borrow money against his/her home’s equity. The raised cash can be used to buy a car.	Long repayment term (as long as 30 years) Lower monthly payments	Highly risky
Upfront Cash Payment	A buyer pays for a car fully in cash. No need to apply for a car loan and monthly payments.	No need for a budget, monthly repayment, interest, & loan processing fee Enjoy huge discounts & freebies	A significant amount of money is given out that can be otherwise used for investment, savings, or during emergencies.

 

When deciding upon a car financing option, make sure to compare interest rates and pay close attention to loan duration, and check if the interest rate is fixed or variable. Note that even a small difference in the interest rate can make a significant difference in the monthly payments over time.

Tip 3: Check your credit score

Before applying for a car loan, check your credit score, as it plays an essential role in securing a car loan in the Philippines. You can request your credit report from the Credit Information Corporation (CIC). We’d recommend only applying for a loan if your credit score is good, as a bad score will result in a loan with unfavourable terms.

Wanna know what difference a good credit score can bring here? Read along.

• A lender refers to this magic number before deciding whether or not to approve a car loan application. The rule is - the higher the credit score, the higher the chance of loan approval and vice versa.
• An applicant's credit score also has an impact on the interest rates offered; an excellent credit score will translate to lower interest rates, thus making overall car financing affordable.
• Lastly, credit score also has an impact on the loan agreement terms and conditions (down payment, maximum loan amount, and loan tenure). A good score will get you more favourable terms and vice versa.

In the Philippines, credit scores range between 350-800, and a score above 700 is considered good and favourable by lenders.

Tips to improve your credit score - Pay bills on time Do not max out your credit card limit  Manage your credit card wisely Dispute inaccurate information on your credit report  Limit your loans Diversify your credit

Tip 4: Understand loan terms & conditions

Before diving into the world of car financing and loans, it is essential to be well-versed in the basic terminology. Why? You’ll be more comfortable while negotiating, have a clear understanding of all the conditions, minimal scope of confusion - these are some of the key benefits.

Key terms include -

Downpayment	It is the cash the car owner pays to the dealer against the purchase. The more the down payment, the less money is needed to be financed.
Interest Rate	Mostly expressed in the annual percentage of the outstanding loan, it refers to the amount the borrower annually pays against the loan. Car loans usually roll interest into the monthly payment, and with each payment, less interest is charged.
Loan Duration/Term	It refers to the amount of time a borrower has to pay back the loan. It is usually expressed in months and is proportional to the car’s price.
Prepayment Penalties	It is a fine/penalty imposed by some lenders when a borrower repays the loan early. Usually, they are not mentioned so clearly; it is good to ask.
Chattel Mortgage	It is a loan agreement where the car serves as a loan collateral. It allows the lender to repossess the car in case the borrower defaults on the loan.

Tip 5. Factor in depreciation

Did you know that a new car depreciates by about 20% as soon as it leaves the dealership? And post that as well a car will continue to lose its value, therefore it becomes crucial for a buyer to this particular point when deciding between new & used car. Here’s what the two offer -

New car	Old car
It offers - Warranties Low initial maintenance Quick depreciation	It offers - Slow rate of depreciation Better value, if well maintained No warranty

Tip 6. Get these documents ready

When applying for a car loan, the applicant needs to get the documentation in check as it serves as a proof of the borrower’s identity and income.

A typical car loan documentation requirement includes - Valid government-issued IDs Passport Driver’s license SSS ID/UMID Alien Certificate of Registration OFW ID Certificate of employment, income tax return (ITR), PAYSLIP  Proof of remittance Certificate of employment for OFWs Business registration certificate, bank statements, ITR, business permit, and audited financial statements for self-employed individuals

 

Tip 7. Evaluate car insurance options

This might come as a surprise to some, but it is essential to evaluate car insurance options well before purchasing a car. Why? Well, that’s because insurance is quite a heavy expense in itself, plus without it, you can’t drive in the Philippines.

While third-party insurance is mandatory in the Philippines, it doesn’t offer coverage to the car owner, the passengers (in the insured vehicle), and the insured car. And that’s where comprehensive car insurance comes in. It provides protection against theft, collision, natural calamities, and more.

Few other tips -

• Do not rush into making any decision. We understand the entire process can be quite overwhelming, but make sure the financing options, car model, monthly payments, and other considerations fit well into your budget.
• When in confusion, it is advisable to consult an expert. Financial advisors will offer tailored insights that fit your financial situation.
• After narrowing down the car options, test drive each vehicle. Take note of details like noise levels, comfort, and visibility during the drive.

Bottom line

When planning to buy a car, one should take note of a few things, including your budget, financing options, essential documents, depreciation, and like. Remember, it is not just about getting your dream car but ensuring your financial well-being in the long term.

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