Things You Need To Know Before You Take Out A Car Loan

luxury carThese days, cars are no longer unattainable luxuries, but instead, increasingly affordable necessities especially with the availability of car loans. Here are some things you need to know before jumping into getting a car loan – which is usually a 5-9 year commitment.

Minimum Car Deposit and Guarantor

Banks normally require a borrower to pay the minimum car deposit upfront before a loan can be awarded. Car loan deposits usually starts at 10% of the car’s total purchase price, but this amount may be subject to existing promotions between banks, car manufacturers and dealerships.

For compact cars, banks normally require a deposit of between PHP30,000-PHP50,000 depending on the model. More expensive cars stipulate minimum deposits of s much as PHP100,000 while cheaper entry-level cars may not require any car deposits. Consumers with good credit standing may also have their deposit requirement waived or reduced.

Interest rates – Fixed and Variable

Interest rate for car loans can either be variable or fixed. Fixed interest rate car loans charges a rate of interest that does not change throughout the loan tenure. For variable interest rate car loans, interest rates change in tandem with the national benchmark lending rate, the Prime Lending Rate (PLR).  This means that the rate (and therefore amount) of interest you pay can vary from month to month as the PLR changes. In the Philippines, car loans more commonly come with fixed interest rates.


Some banks provide insurance coverage bundled with a new car for the first one to three years of the car’s life. After this insured period, you will need to acquire coverage from a general insurer. In many cases, lenders require borrowers to insurance coverage first before a loan is approved.

Charges on Late Payment

Late fees are charged every time you fall behind on your car loan payment. A daily interest can also be charged by banks as the overdue amount accrues and accumulates.


Banks don’t immediately repossess your car upon one late payment. There’s usually a grace period of a maximum of three months (depending on the actual contract you signed) to settle your outstanding balance before repossession takes place.

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