Financing options: Which one is better?

Financing options: Which one is better?

Financing options are the ways that your car loan can be paid for. These are offered by either the bank or the dealership themselves. These give buyers the freedom to choose which payment scheme will suit their financial capability.

Bank financing is when the payment for the car loan will be shouldered by the bank. It comes with a smaller interest rate which makes the borrower pay less over the actual SRP of the car.

However, the downside with bank financing is that the approval doesn't come in as quick as that of in-house financing. The banks approve the car loan depending on the lendee’s current financial relationship with them, which includes the credit history, unpaid bills, and unsettled payments to other banks or commodities.

In-house financing, on the other hand, is an option that the dealership gives to the buyer. They offer quicker approval, which sometimes can go in as fast as 2 hours.

Another advantage of in-house financing is the promos that come with it. This include free chattel mortgage fees, 1-year comprehensive insurance, and 3-year LTO registration. However, in-house financing sometimes offer higher interest rates which means that the borrower will be paying more over the car's SRP as compared to that of bank financing.

Computation

The downpayment is usually from 20% to 50% of the car’s actual price. The remaining percentage plus the interest rate will be paid in monthly dividends. This is called the monthly payment or the monthly amortization which has a loan period that can go from 12 months to 60 months. The amount of downpayment and the length of the loan period will depend on the approval of the lender.

Here's a sample bank financing computation using the Car Loan Calculator:

SRP: P1,000,000

Downpayment (20%): P200,000

Amount Financed (AF): SRP – Downpayment = P1,000,000 – P200,000 = P800,000

Monthly Amortization (60 months): P16,970 per month

AF + AF(Interest Rate) = P800,000 + P800,000(27.28%) = P16,970 per month

       Loan Term          60 months

Which is better?

The better financing option depends on the borrower’s financial capability. If he has a strong relationship with a bank, then bank financing would be better. He’ll get a better deal with them as the interest rate is lower and the approval will be faster.

If the borrower is in a rush for the approval and hates waiting for a third party to approve the loan, then he should choose in-house financing. All-in packages and other freebies might make up for the higher interest rates that it offers.