Is Your Car Loan About to Become a Financial Disaster?
For most Filipinos, owning a car is a status symbol. More often than not, if we know we need a car for transportation, we will get it anyway at the right price. There are different ways to finance your car, most people would opt to pay a lump sum because it’s cheaper and most would opt for a car loan or an auto loan.
Unless you are well-off, the most common way to buy a car is with a car loan. The reality is, only a small, enviable part of the population can afford to purchase a car without any financing. For most of us, car loans make an otherwise very expensive purchase possible by subdividing the purchase into affordable monthly instalments.
Car Financing: Loan or In-House?
Consider your options first. One of the best ways on how to look for the best car loan is to check different banks that offer these types of loans. You can check for their interest rates, terms and other details that pertain to the payment of your vehicle. For this option, your credit history and your savings can help you get approved. For banks, they’d typically approve you after a day or two.
Another option for car financing is through in-house finance option. Since the dealership typically ties up with a financing institution like a bank, this makes lending process so much easier. In fact, you can get approved after two hours or so.
Bankruptcy in A Car Loan
Although bankruptcy is not a common thing in the Philippines, repossessed vehicles are. If managed well, auto loans are extremely helpful since it allows you to spend for other expenses that you need day to day. However, like most forms of financing, a car loan can become a financial burden if taken lightly by the borrower. How can you tell if your car financing situation is about to become horror story-material?
Ask yourself: Do you even need a car? Consumerist urged often corner us into making irrational choices when it comes to purchases. When buying a car, we tend to gravitate towards the latest cars, even when we can barely afford it. Pretty sure you eyed on that million peso ride, paying through the nose for assets that may depreciate up to 20% in the first year, is by any yardstick, a poor investment choice. Consider the interest rate you have to pay on top of the car price, and what you end up doing is paying a premium for an asset that decreases in value every year. While it is the less attractive choice, it is always prudent to consider a second hand purchase, which come in at a much lower purchase price, less steep depreciation, and much more affordable monthly repayments.
Do not ever purchase cars that had a bad history. In 2009, there were a great number of cars that were flooded during the Typhoon Ketsana (Ondoy). While many of these cars were repaired and are currently road worthy, purchasing one may not be such a good idea. Water damaged vehicles are a maintenance risk to their next owners. If you intend to buy one, beware that your cost of ownership may not just comprise the monthly car loan instalments, but also the potentially exorbitant maintenance bills that ensue. You may also end up paying off a car loan for an asset you would be unable to sell when you want to.
Lastly, have you ever thought of buying a house and a car all at the same time? If you are already servicing a housing loan, committing to a car loan without properly counting the costs is the perfect formula for a financial mishap.
Avoiding A Financial Mishap is Easy
Understand what you are signing up for. Know all the particulars of the deal, the monthly payments, the loan period and your monthly income, is it still possible to live comfortably whilst paying for your loan?
Secondly, don’t fall for low down-payment schemes without understanding their implications. Down payments are the only portion of the car price that you will not pay any interest on. Putting down a lower deposit amount effectively means paying more in interest over the long run.
Lastly, assess all your transportation options. Do you really need a car right now, or is it more of a ‘want’? Answering these questions will put you on the front foot, when it comes to managing your car repayments over your loan period. In some cases, it may also lead you to decide on putting off that car purchase altogether until a later time.
Take A Closer Look
It is everyone’s dream to have his or her own car. This represents freedom to go wherever you wish, not to mention the convenience of leaving the house towards your destination without compromising your private space.
But of course, getting a car is far more complicated than shopping for groceries. Before you even consider having a car loan, it is important to consider the different factors at play that could affect your payment, and even some of your other commitments. It is also important to note that the price of the car is not the only cost that you will eventually have to shoulder.
Whether you are driving the car or not, you will have to pay for its maintenance, especially if it is a second hand vehicle that already had a decent mileage on its odometer. What you have to realize is that having a car may be an additional asset to your name, however, this can also be a liability to you. Just imagine paying for the parking, gasoline, maintenance, car wash, insurance and other unexpected costs.
Ask yourself again this question: Does the benefit outweigh the cost?