Quick and Easy Auto Loan Application.

Introduction

Buying a car in the Philippines is one of the biggest purchases that many Filipinos will ever make, with approximately 80% of new car buyers requiring a car loan. The need to purchase a car is still a highly aspirational purchase as public transport has not reached the level required to reduce reliance on private vehicles. There are many different ways to avail a car loan with varying factors that inevitably effect payments, requirements and processes. One of the most notable debates is whether or not to avail a car loan directly via an auto loan provider or by getting a desired dealership to do the process for you. The following guide will help you make sense of the car loan industry in the Philippines.

What is a car loan?

A car loan is a secured personal loan which is provided by banks and financing companies to give consumers the means to avail a vehicle and pay for it on a monthly basis over a fixed term. The provision of a car loan empowers consumers with stable income and/or good credit history to minimize their initial cash payment by borrowing a specific portion of a vehicles price from an auto loan provider. Loans are provided with a fixed interest rates, which constitutes the additional fees you pay across the duration of a loan term for the benefit of availing the loan.

Car Loan versus Cash Payment

Car loans provide an easier way to avail a vehicle without causing a significant initial dent in your bank balance. While buying in cash will provide you with the cheapest overall price, a car loan will provide you with an easier means of paying for a vehicle over an extended period of time. Some questions to ask yourself before availing a car loan are:-

• Do I earn enough and am I capable of making monthly loan repayments of P10,000 - P20,000 a month?
• Am I able to pay for the service and maintenance costs associated with the purchasing of a vehicle?

If the answer to these questions are yes, then a car loan could very well be for you.

Many prospective car buyers do not have the necessary cash saved to purchase a car outright in full, but do have good enough jobs and income to enable them to pay for one over a five year period.

What are the benefits of direct financing?

The typical benefits of direct financing with a bank (versus dealer financing) are lower interest rates and cheaper monthly amortizations. The trade-off is that in most cases banks and financing company will require a minimum downpayment of 20% of the retail price of the vehicle. As such consumers will not typically be able to avail all-in low or zero downpayment offers that are typically offered to those customers who avail auto-loan financing via a dealership.

What are interest rates?

An interest rate is the amount a lender charges on every loan; this is often expressed as a percentage of the principal amount which is borrowed. The interest rate is typically calculated as an annual percentage rate (APR). An interest rate dictates the actual amount that you pay over the duration of your loan term; so the higher the rate, the more you pay. For auto loan financing in the Philippines, all auto loan interest rates are provided as a fixed rate.

What are the valid ID’s & required documents for an auto-loan?

When applying for a car loan, you’ll need to provide certain valid IDs and documents to verify your identity, financial capability, and eligibility. The basic requirements typically include:

• Valid Government-issued ID (with signature and photo) of borrower/spouse/co-borrower/co-maker/signatories ofthe loan
• Latest Proof of Billing (under borrowers name)
• Dealer quotation

Additional documents may be required based on your employment status:

For locally employed applicants

• Latest Income Tax Return (ITR) / BIR Form 2316 (duly stamped by BIR) or pay slips for at least 3 months.
• Latest Certificate of Employment with Compensations.

For applicant employed abroad

• Latest Crew Contract (for seafarer/seaman); Latest Employment Contract duly authenticated by Philippines Consulate (for OFW’s)
• Proof of Remittance (allotment slips) for at least 3 months.

Requirements for Self-Employed / With Business

• Latest Income Tax Return (ITR) / BIR Form 2316 (duly stamped by BIR)
• Latest Audited Financial Statement / Statement of Assets and Liabilities/ Statement of Income and Expenses.
• Certificate of Business Registration with DTI (sole proprietorship) or SEC (partnership/corporation).
• Bank Statement or photocopy of Passbook for last 3 months.
• Proof of Other Income (Certificate of Deposits, Stock/Bond Certificates, Lease Contracts etc.)

Additional requirements if collateral is used/second hand/imported vehicle

• Copy of LTO OR/CR under the name of the seller/applicant
• Deed of Sale
• PNP Clearance and Macro Etching Certificate
• Bill of lading and importation papers, including proof of payment on custom and duty taxes (for imported units only)

Will my application get rejected?

Loan approval is subject to the terms set forth by loan providers. Part of the loan application will involve checking your monthly income, fixed assets and existing debts. If you fail to reach the minimum requirements or do not submit all required documentation, then there’s a chance that your loan could be rejected. The minimum mandated gross monthly income to avail a (brand new) auto loan is Php 40,000 - this can be the combined income of both the borrower and spouse. Achieving a joint minimum household income however does not automatically guarantee you approval of a loan.

What can I do if I initially get rejected for an auto loan?

Loan approval is subject If you are rejected by an auto loan provider, you can consider any of the following as possible next steps:-

• Apply with another loan provider - While the requirements to avail an auto loan may be similar for every loan provider; things like an existing banking relationship may help your chances at getting an approval. If you get rejected by one loan provider, consider applying with another.
• Select a cheaper variant of vehicle - One of the factors that a loan provider will evaluate your application on is the amount in which you are trying to borrow. Consider selecting a cheaper priced vehicle or a cheaper variant of the vehicle in your application.
• Apply with a bigger downpayment amount - As with the item above, banks will be evaluating you on how much you want to borrow. If you don’t wish to change your vehicle choice, then consider making a larger downpayment as a means to reduce the total borrowable amount.

Who can get an auto loan?

For Individuals

• Filipino citizens who are residents of the Philippines; or Foreign citizens residing in the Philippines, provided, accompanied with a positive endorsement from the company he is affiliated with & a qualified Filipino citizen guarantor or co-maker in place
• Filipino citizens who are residing outside the borders of Philippines, provided with qualified Filipino citizen guarantor or co-maker in place.
• Age must be 21 years old but not more than 65 years upon final maturity of the loan.
• Usually a combined minimum of P40,000 income with spouse (brand new car) or P20,000 (2nd hand/used car)
• Proof of income from an employer or proof of revenue if self employed (2 years worth)

For Partnership and Corporation

• Must be duly registered to operate as a legal entity in the Philippines.
• The business must be in operation for at least three (3) years.

For Start-up Businesses

• Start-ups or businesses operating for less than 3 years, co-makers / sureties are required.
• Must have strong business prospects/potentials based on evaluation.

What to consider before getting a car loan?

• Consider what you need a car for and your budget.

  Buying a car is not just the purchase, but the fuel, maintenance and insurance costs and the depreciation value of the car. These things are all extra monthly costs that need to be considered. What kind of car do you need for your journey, is it city or provincial driving, how many passengers will be in your car on a regular basis. Finally should you go for a new or used vehicle? It is getting easier to get a good quality used car with financing these days, so it’s worth a look.

  Your budget should always fit within your monthly earnings if you are getting a loan, and their should be excess to pay for gas, maintenance etc. If you stretch yourself too thin you always run the risk of potentially not been able to afford repayments, which can lead to bank repossession, which not only takes the car away from you but also gives you a poor credit score, making it more difficult to get a loan in the future.

  Use our car loan calculator to help you decide which car fits your monthly budget. Our car loan calculator will estimate the monthly loan cost on the vehicle you are interested in, as well as the loan amount. You can then compare the results of the different loan variables from our partner banks.

Tips on how to get an auto loan.

• Your own bank or a different bank?

  There are plus points for either route, if you go with the bank you have an account with then it is easier for them to process your loan as they have your credit history with them, but other banks want your business and will work hard to give you the loan you want and that will enable them to get you to open an account with them.

• What is your debt level?

  If you spend quite a lot on your credit card and manage the payments well then that is a plus, as it shows you can manage repayments. Applying for a loan with a high debt level without proof that you can regularly pay it back will make it near impossible to get a car loan.

• Maintain your job during the loan process

  You need to be working at a company for 2 years to be eligible for a loan, so if you left your job before applying for a loan then that would prevent you getting a loan. Many banks will also call to confirm your work and role at the said company.

• Carefully prepare documents

  Spend some time getting your documents together to go with your application form. It can be very frustrating if you hand in your application with supporting documents and you get rejected because of lacking documentation, and you have to go through the process again.

How do I pay auto loan payments?

The most common way to pay your loan is through monthly direct debit. The bank that provides your loan will ask you to create a personal account, and then they will just deduct the monthly amortization each month. All you need to do is make sure that account has the correct money in it every month, and with the rise of digital payments it is easier than ever to switch money around different accounts.

Can I get a car loan for a used car?

Yes absolutely, more and more banks are providing car loans for used cars. There are usually certain restrictions like the car needs to be less than 10 years old and the maximum duration for a loan is usually 48 months. There are a few more hoops to jump through but it’s getting easier.

Why are interest rates higher for a used car compared to a new car?

Interest rates are higher for a used car, but you can lower the interest by paying the first month payment upfront, or paying larger down payment. The reason interest rates for used cars are higher than new cars is because there is more risk associated, therefore in case of repossession the bank is hoping that it has recuperated as much of the loan as possible with higher interest rates.