Used car loan hacks: How to pay less interest

Used car loan hacks

Buying a new or used car is a dream come true for many. However, everyone must overcome the hurdle of getting the finances right in this journey. One of the easiest ways to finance a car is by securing an auto loan, which can be done through various institutions, each with its benefits and terms. What remains common, however, is the interest to be paid monthly, thus affecting the budget status.

KEY TAKEAWAYS

  • Can I refinance my used car loan in the Philippines?

    Yes, many lenders in the Philippines offer refinancing options which in turn helps reduce interest rates.
  • How much down payment is required for a used car loan?

    Most Filipino lenders require at least 20–30% as a down payment.
  • Are there special promotions for used car loans?

    Yes, banks and dealerships occasionally offer discounts, waived fees, or lower interest rates during promotional events or holidays.
  • In this article, we’ll be learning techniques to minimize the interest you’ll pay on your used car loan along with answering a few basic questions, including

    • Where to finance a used car loan?
    • What factors should you consider when financing a used car?

    We’ll begin our discussion with the next step a buyer must consider after making up his/her mind to buy a used car, i.e., to make necessary preparations to facilitate the purchase. This includes -

    Assessing one's financial capacity

    Before applying for a loan, it is a good idea to assess your credit score. A high credit score demonstrates your reliability as a borrower and may qualify you for lower interest rates. In case of a low score, take steps to make improvements like paying bills on time, reducing existing debts, etc.

    Choosing a vehicle

    Always choose a used car that fits your budget and needs. As for loan terms and interest rates, it all depends on the car’s age, condition, and price. Cars with better resale value enjoy more favorable financing options.

    buy a used car Photo from kreditbee

    Comparing financing options

    There are quite a few options available when it comes to used car financing, however, it is advisable to compare all of them side-by-side and pick the one you find most suitable.

    Prepare necessary documents

    If you want to get a used car loan in the Philippines, prepare the following documents -

    • Valid government-issued IDs
    • Proof of income (e.g., payslips, tax returns)
    • Certificate of employment (if employed)
    • Proof of billing address
    • Bank statements for the past three months
    • Deed of sale and vehicle documents (for car verification)
    • Submit loan application

    Once you have all the documents ready, apply for financing through your chosen lender.

    Review & finalize loan offer

    Pay close attention to hidden costs, such as prepayment penalties, and ensure you understand the total cost of the loan. Once everything is sorted, finalize the agreement.

    Make timely payments & exploding refinancing

    After acquiring your vehicle, make timely monthly payments to avoid penalties. If market rates drop or your financial situation improves, consider refinancing

    Used car financing tips

    • Monitor promotions for discounted interest rates during holidays or events like the Manila International Auto Show.
    • Choose a lender with a good reputation for transparency and customer service.
    • Always test drive and inspect the vehicle before purchasing.

    Also Read: How to calculate your used car loan payments: Tools and tips

    How to pay less interest on used car loan

    Purchasing a used car in the Philippines is often an affordable and practical choice. However, financing it through a loan can become costly due to interest rates. To help you save money, here are some essential hacks and strategies -

    Tip 1. Work on your credit score

    It is a common practice for lenders to evaluate the applicant's credit score to determine their loan term. If your score is higher than congratulations, it signals lower risk which results in better interest rates.

    Tip 2. Shop around for good deals

    Not all lenders offer the same interest rates. Banks, financing companies, and car dealerships often provide varied terms and therefore it is important to compare all offers to identify the most competitive rate.

    Tip 3. Make a substantial down payment

    A significant down payment reduces the loan amount, which means lower interest charges. Filipino lenders generally require borrowers to make a minimum down payment of 20 to 30%, but remember the more you pay upfront, the less financial burden you’ll have over time.

    buy a used car hacks Photo from kreditbee

    Tip 4. Opt for a shorter loan term

    Longer loan terms seem like an attractive option due to lower monthly payments, but they usually carry higher interest. A shorter term (12 to 36 months), on the other hand, minimizes the total interest paid. However, do make sure the monthly payments are within your budget.

    Tip 5. Consider refinancing

    If you already have a used car loan and find better rates elsewhere, refinancing can be an excellent option. Many lenders in the Philippines allow refinancing to help borrowers secure lower interest rates.

    Tip 6. Choose the right car

    Car loan terms are influenced by the vehicle’s age, make, and condition. While new and well-maintained cars often qualify for lower interest rates due to better resale value and lower risk for lenders. Also, ensure that the car has no outstanding liabilities.

    Tip 7. Negotiate loan terms

    Make a point to always approach the lender with confidence and inquire about reductions in interest rates, processing fees, and payment penalties. Do not forget to highlight your strong financial standing or take advantage of an existing relationship with the bank.

    Tip 8. Time your loan application right

    When an applicant applies for a loan at the end of the fiscal year or during a promotional event increases your chance of securing favorable interest rates.

    Tip 9. Employer or organization discounts

    Some organisations have tie-ups with banks offering the employees exclusive deals. So, do check if your company or employer provides such benefits (lower interest rates or fee waiver).

    Tip 10. Pay on time or be ahead of the schedule

    Timely repayment of a loan has several benefits like maintaining the borrower's creditworthiness and saving him from potential penalties. If allowed, consider pre-paying the loan to reduce the outstanding principal amount, which in turn will lead to lower interest charges.

    Tip 11. Avoid over borrowing

    Only borrow what you truly need. Taking a larger loan than required means higher interest payments over time.

    Tip 12. Look out for promotions (no-interest or low-interest)

    Stay up-to-date by checking the official websites of financial institutions/dealers and banks, Why? Well, that’s because they periodically offer no-interest or low-interest financing deals, especially for specific vehicle types or during promotional periods.

    Tip 13. Verify total loan cost

    Often lenders advertise low monthly payments but have high fees hyphenated in their terms. So make sure to calculate the total cost of the loan including interest, fees, and other charges.

    Tip 14. Explore alternative financing options

    In case traditional car loan options do not suit you, consider alternatives like peer-to-peer lending or personal loans. These options offer better rates or more flexible terms depending on your credit profile.

    Tip 15. Prepare thoroughly before applying

    Make sure to have all necessary documents ready, such as proof of income, government-issued IDs, and employment certificates, ensuring a smooth application process. Incomplete documentation may lead to delays or less favorable terms.

    Where to finance a used car loan

    In the Philippines, financing a used car loan can be done through various institutions, each with unique benefits and terms. Here's a breakdown of the most common options:

    Bank

    Banks are one of the most reliable and popular sources for used car loans due to their stability and competitive interest rates. Some top banks offering car loans include BDO, BPI, and Metrobank.

    Auto dealership financing

    Many car dealerships collaborate with financing companies or banks to provide loan options for buyers. This option simplifies the process as the dealership handles much of the paperwork.

    Financing companies

    Non-bank financial institutions often cater to borrowers who may not qualify for bank loans. Some of the well-known names in the field are Radiowealth Finance Corporation (RFC) and SAFC (Secured Automotive Financing Corporation).

    Factors to consider while choosing a financing option

    When selecting a financing provider, consider the following factors:

    • Interest rates and loan terms.
    • Processing fees and additional charges.
    • Eligibility requirements and documentation needed.
    • Promotional offers or bundled benefits.

    Bottom line

    Reducing the cost of a used car loan in the Philippines requires preparation, smart decision-making, and awareness of your options. Some useful tips to save significantly on interest costs include improving your credit score, shopping for the best deals, making larger down payments, and negotiating terms.

    Also Read: Used car loan: Common mistakes to avoid

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