What is Car Financing Loan?

Buying a car is a huge financial decision. Without calculations, it might deplete your funds and eventually lose the car in your possession. If you can’t afford to buy now but having one will improve your productivity and profitability, consider getting a car financing loan.

How does car financing work?

A car financing loan is a secured loan that finances car purchase, be it brand new or second-hand. There’s a range of lenders that you can borrow money from, but all of these financial institutions follow the same process. It enables you to have the car and stretch the loan repayment into a period more favorable than paying it one-time or through the aid of commissioned dealers.

The auto loan works like all debts you know, meaning it comes with interest and other charges involved in the whole loan process. The rates will depend on your lender. The car serves as the collateral, allowing the lender to legally seize the car if you fail to fulfill your dues. However, if you possess a commendable paying habit, the auto loan is a great option to have the car that you dreamed of so that you can lessen the hassles of traveling and manage your time more wisely.

Auto Loan Terms to Remember

Don’t just make a call to the loan provider and listen throughout their briefing. It’s best to familiarize the terms used in an auto loan so you can negotiate and get the best deal out of your transaction. Here are the basic ones:

  • Annual percentage rate (APR)

The annual percentage rate is made up of the interest rate and all other fees included in the loan processing. Knowing the APR is important, especially if you are comparing loan offers from different financiers. This indicates which offer will cost you less or more in the long run.

  • Down payment

The down payment refers to the initial amount of cash you need to give to start the loan. Depending on your credit profile, lenders offer different down payment rates, and some offer zero. A borrower should take note that the bigger amount you pay as a down payment, there’s a smaller loan you need to pay throughout the signed term.

  • Monthly payments

The monthly payment is the amount you need to pay for the rest of the loan. It includes the principal amount and the applicable interests that are equally distributed each month. This makes the loan repayment more workable for the borrowers.

  • Taxes

Taxes are mandatory in a state, so rates differ on where you purchased the car.

  • Terms

A term refers to the length of the loan. A car loan usually lasts from 36 to 72 months, but other ranges may be available to other lenders. Borrowers should know that a short-term loan gives you a higher monthly payment but with a lesser interest rate. However, the long-term loan gives a lower payment each month but has higher interests overall.

How to qualify for a car financing loan

The good thing about the car financing loan, especially if the lender is neither through a bank or dealership, is that the borrowers can easily pass the eligibility. To be qualified for the loan, you must:

  • Have a Filipino citizenship
  • Be between 21 to 65 years of age
  • Have tangible and verifiable source/s of income

What are documents needed?

Moreover, the list of documents you need to submit can be collated in a short period. These are:

  • Two (2) government-issued IDs and should be active
  • One (1) copy of OR/CR (Official Receipt and Certificate of Registration)
  • Valid ID and contact details of the car seller
  • Tax Identification Number
  • Proof of residence, such as the most recent water or electric bill. Additional documents that bear the borrower’s name and address may be needed.
  • Proof of income, which includes pay slips for the last three months (for employed applicants), valid business permit (for entrepreneurs), or remittance receipt for the last three months (for remittance beneficiary)

Why is a car loan good for you?

If you’re still in doubt about taking a car loan, you might need to look at the benefits of getting one.

Here they are:

It enables you to purchase a car that you can’t immediately afford.

The need for a car is ever-present, but shelling out funds is not the best decision right now. A car financing loan solves this dilemma, especially if paired with careful adjustment on your cash outflows and inflows.

It eases the payment by distributing the costs evenly into monthly dues.

Taking out a car loan also means you can spread the cost over a longer period, which in turn makes your car much easier to pay for – and you will always know where you stand with your monthly payments. You’ll also know exactly how long you’ll be paying the loan for until it’s completed.

It helps you establish a good credit profile

While credit scoring is not yet implemented in the Philippines, financial institutions still value clean track record and thus checks your profile through credit reporting from trusted bureaus. Applying for an auto loan establishes your credit, giving a good impression to lenders, especially if you pay on time. However, this can backfire if you are a delinquent borrower.

It comes with faster and flexible processes.

There is a higher percentage of being approved to car finance than a bank loan or dealership financing. Non-bank and non-dealership lenders follow milder verification and approval processes of borrowers. Aside from lesser documents, the service is quicker and more personalized.

It allows you to use your cash on other essential expenses.

Since the cost is spread to a specific period, it loosens your budgeting and allows you to keep your funds for bills, food, and other essential expenses.