Car Loans in the Philippines

car loan puzzleSo you’ve found the car of your dreams but the price is not within your (cash) budget. Your next move – a car loan. A car loan is a popular way to finance your car purchase. A car loan helps most people own cars they would not otherwise be able to acquire due to their inherently prohibitive cost. In the Philippines, the responsibility of the loan issuer and the borrower are established in the Republic Act No. 7394, or the Consumer Act of the Philippines. The law aims to protect the rights of both parties who are entering into an agreement.

Getting a car loan is a huge commitment. You will need to set aside part of your monthly earnings to your car’s monthly repayment. For this reason, it is important that you know your earning potential and your ability to commit to a payment scheme in order to avoid defaulting on payments and getting your beloved new car repossessed.

The basic question most people ask when getting a car loan is where to get one. You have two options: either from a bank or a lending institution or through an in-house financing with your dealer.

Bank Financing

Car loans from banks are convenient to acquire, and have a considerably low interest rate. If you have a good credit standing and have enough savings on your account, you are more likely to get approved, and be given more favourable terms.

Approval time usually takes a day or two with many banks offering an “all-in” type of financing where they can finance not only the purchase value of the car but also its miscellaneous expenses such as first year insurance, LTO registration, and others.

In-House Financing

In-house financing is becoming popular because it is a s a “one-stop-shop” method of financing. It allows you to shop for a car and finance it all in one place and in the comfort of the car dealer’s showroom. Car dealerships usually tie up with banks or lending institutions or have their own financial services firm to finance car purchases.

How does a car loan work?

Once you choose your dream car, you pay a minimum deposit upfront. The bank providing you the car loan will pay the rest of the car’s purchase price. The bank technically owns the car, while you “rent the car” from the bank for a specific duration. Once all repayments are made, the ownership of the car is transferred to you.

With car loans, you will not own a car until you have completed all necessary repayments. The chart below explains the transactions that take place in a car loan involving you, a bank and a car dealer.

Car Loans in the Philippines

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