Essential Things to Know about Car Financing Loan

Owning a car is not a hassle anymore with the streamlined application process and modern financial services such as car financing. Vehicles, be they brand-new or pre-used, are made more affordable through auto loans. You can now complete your car purchase in easy steps, as long as you know the things to know about car financing loans.

What is car financing?

Car financing is a practical way of owning your dream car. Instead of shelling out a huge amount of money from your savings, you can borrow funds from financial institutions such as banks or lending companies to complete your purchase. The monthly equal payments that auto loans place in your contract are much easier to pay than the total price of a one-time car purchase.

Factors that affect auto loan payments

The payment cost for your auto loans may differ according to these factors:

  • Type and price of the vehicle – Is it brand-new or second-hand? What is the make and model of the car?
  •  Down payment – This refers to your desired initial upfront payment, and this will be the basis of how much you still need to pay for the rest of your auto loan contract with all the interests and fees. A higher down payment means a lesser price to be divided into equal amounts.
  • Length of the loan – The repayment plan you agree on will also determine how much you will pay every month. Short-term plans come with higher monthly payments but with lower interest. Long-term plans come with lower monthly payments but it gives you a higher interest rate in the long run.

Where can you get car financing loans?

There are various financiers where you can apply for auto loans: banks, dealerships, and non-bank lending entities. Banks have lower interests compared to in-house financing from car dealers, however, the process comes with long and strict guidelines. Non-bank lending entities have become the choice of many car buyers because of their flexible services and easy approval.

How to tell if you’re qualified to get an auto loan

To be eligible for an auto loan, you should meet the following minimum criteria:

  • You must be a Filipino or foreign resident
  • Your age should be between 21 and 65 years old (must not be older than 65 years old upon loan maturity)
  • You should meet the minimum monthly income requirement (depends on your purchase)
  • If you are professional, you should have at least two years of employment
  • If you are a business owner, you can present two years of profitable business operation

Things to prepare for auto loan application

Here are the documents that you need to prepare when applying for a car financing loan:

  • Valid IDs (these include driver’s license, passport, OFW ID, UMID, Alien Certificate of Registration, etc)
  • For employees – Certificate of employment, Income Tax Returns from BIR, recent pay slips
  • For self-employed and entrepreneurs – business permit, business registration certificate, bank statements, Income Tax Return, and updated financial statements
  • For OFWs – Certificate of Employment, proof of remittance, and pay slips

NOTE: Additional requirements may be asked by the lenders

What to do before applying for car financing

Wanting to have a car is fine, but preparing yourself before buying one is better. Here are some tips that you can do:

1. Self-assess your financial capability

Although the auto loan covered your purchase and eased the plan into equal payments for a specific period, monthly payments also need discipline and budgeting to complete your loan repayment. Ask yourself, “Can I afford to allot a part of my income for my car, or do I need to step aside for now?”

2. Get an auto loan pre-qualification

After a self-reflection, you also might want to be evaluated by lending institutions even before signing an official agreement. This will give you an idea of your qualification and allows you to address the factors that might hinder your approval.

3. Compare loan offers from various lenders

Banks, dealers, or private lenders offer loans with different structures. It’s best to consult more than one entity that provides loans and make a comparison of their offers. This will guide you about entities that give lower interest rates or an easier application process.

4. Customize your repayment plan

Financiers like non-bank lending companies commonly has more flexible plan and personalized services. You may ask for assistance on how to match your purpose, financial capability, and lifestyle to the description of their loans.