For Overseas Filipino Workers (OFWs) or seamen, it's enticing to spend your hard earned money on a brand new car. You may pay in cash but an auto loan can be your option if you don't want to spend 6 to 7 digits right away.
For Overseas Filipino Workers (OFWs) or seamen, it's enticing to spend your hard earned money on a brand new car. You may pay in cash but an auto loan can be your option if you don't want to spend 6 to 7 digits right away.
What is a Car Loan?
A car loan is the amount of money borrowed from a bank or directly from the dealer to buy a new vehicle. This will be paid monthly and with an interest. The interest rate is the additional cost on top of the borrowed amount, or loan principal, which depends on lender.
New car buyers might think that they automatically own the car once acquired through a car loan. However, the lender is buying the car for you with the agreement that you will pay the agreed monthly amortization. They own the car until you’re able to complete the payment. Although maintenance, taxes, gas, and other vehicle expenses will still your responsibility even while you’re on the duration of the loan. Once completed, the lender will then give you legal documents such as Release of Chattel Mortgage and Original LTO Certificate of Registration with Official Receipt for transfer of ownership.
At anytime you failed to meet the payment agreement, the lender can repossess the vehicle.
Years to Pay
There are 3 common loan terms available – 36 months, 48 months, and 60 months. Let’s say the car that you are getting has a P1,000,000 price tag. With a downpayment of 20% (P200,000), the P800,000 remaining balance will be financed by your preferred lender. If you choose to the 60-month (5 years) loan term, the monthly amortization will be P16,971. This mentioned monthly payment includes the interest rate but excludes tax and insurance.
Credit Standing
The ability to shell out the 20% downpayment doesn’t mean that any lender will let you borrow money. Banks, dealers, and private lending companies enforce strict loan approval which includes checking your credit standing. Bank and credit card statement, Certificate of Employment, latest Income Tax Return, and other legal documents – these are just examples of the things that the lender will ask from you to prove your current credit standing.
They will also check if you have an existing credit card or an existing car loan. These can affect the chances of getting an approval for your car loan. In case your monthly income does not meet the lender’s requirements, they can ask you to have 1 relative as a co-borrower. The co-maker is the surety, an insurer of the debt, and not a guarantor. This means that when the principal borrower is unable to complete the payment, the co-maker is responsible to make it.
