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4 Mistakes (I Did) You Shouldn’t Repeat When Buying A New Car

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With the number of cars plying Metro Manila’s main thoroughfares the past few years, it almost seem like any pinoy with an income of  ₱40,000 per month could actually afford to either buy a brand new or used car. And why the hell not? You’ve worked your ass off for the past couple of years, and rewarding yourself with some sort of convenience wouldn’t be such a bad idea.

Car dealers are offering low installments and huge discounts at the moment, which is a big come on to prospective buyers.  But let me remind you that more than just giving you a good deal,  most of these guys are only after one thing- a big fat commission! I only realized this after almost 2 years of financing my Kring Kring (2013 hatchback), and finding out that I will be paying more than the actual price. Here’s what I did wrong to help you make it right this time:

 

Letting The Car Salesperson Do All The Legwork For You

I was just too trusting with nice people. And when the sales agent started talking about low monthly installments, and how he can help me find a bank that can approve my loan, I instantly had some peace of mind thinking that everything will go smoothly. It actually did!

But my mistake was not doing comparison on my own. I did not check with banks and compare their auto loan packages. I didn’t even bother having a pre-assessment of how much I can take from my own bank! I guess not doing your homework before making a huge purchase comes with a price. And that’s what I’m about to do, 3 years down the road.

You see, interest rates on auto loans range from 28% to 30% for 5 years in most banks, while I am paying almost 60%. Why? Because I am actually under In-House financing that’s partnered with a bank. This increases the dealer’s profit — while I spend thousands more on the car overall. I was told by the sales guy that “Bank X” was quick to approve and that I should open an account with them for the monthly repayments. Apparently, the loan is already pre-approved in-house even before I open an account with the bank.  Sigh.

Lesson learned, never be too trusting with your sales agent. He isn’t your BFF.

 

Choosing a Longer Term To Make Monthly Payments Affordable

3 years? Nah. 5 years? Better! Just when I thought I made the right decision, I was actually making it easy for the dealer to milk my money as I pay a huge sum on interest alone.

This is a big mistake. Why? Because unlike real properties, cars are worth less and less as time goes on and miles are put on. Sadly, I will continue to pay interest on something that I will never have the chance to gain back.

So, the longer the loan, the more interest you’ll pay, and the bigger the loss you’ll end up realizing. While a five year loan may lessen your monthly payment, you’ll pay for it in terms of interest.

When  looking at a possible term, don’t go for the monthly repayments but the total price of the car. A shorter loan tenure may appear to be ₱2,000 or ₱4,000 higher, but hey the interest you’re paying is a lot cheaper compared to those on a 60 months scheme.

 

Telling You Your Income Isn’t Enough

Ok this happened to a friend who’s doing  a “work from home” kind of job. Since she is earning good income, she thought of getting a car as she can actually afford it. The only road block is, she can’t produce an ITR (Income Tax Return) since, well, she’s not paying any taxes. What the agent did next is ask her ₱1,500 to do the work around for her supposed ITR since her income isn’t enough and that she’ll get the approval from the bank. And the rest is her stupidity and red tape history.

You see, first time car buyers like me and my friend are always a perfect target to these predators. If you know nothing about the process, then they can easily sweet talk you and trick you without you evening knowing.

ITRs are one of the many important documents needed for an auto loan. But if you’re stationed at home and is employed overseas, all you need to present (apart from the forms and signed loan documents) are valid ID’s,  certificate of employment, and proof of remittance.

It’ll be an easier process if you apply the auto loan from the same bank of your remittance, since they have all your bank records and transactions. Which brings me to my next mistake…

 

Not Borrowing from My Own Bank

Had I made an enquiry to my bank first, I wouldn’t be paying this much monthly installments for my car loan. But there’s no point crying over spilled milk. So I will just move on.

What got me signing the deal with my sales rep is the  free registration and chattel mortgage, free insurance, and the supposed “low-down-payment schemes, zero-percent interest blah blah… and straight monetary discounts.

But what I didn’t realize then  was that, the dealer still needs to make money. And while they are kind enough to offer all this freebies (free insurance, chattel mortgage and registration package amounting to ₱30,000+), I am spending more than that in interest.

Borrowing directly from your bank can give you better rates. Just so you know, most banks require a minimum of ₱40,000 household income to acquire an auto loan. And since they have your records, it will be easy breezy for the loan approval.

All these boils down to just one thing: do your home work. In all purchases that we will be making, especially this season of expenses, it is best to arm ourselves with information and knowledge that will not only help us make the right decisions, but also help us earn savings in the long run. As what Ernie Baron would put it, “Kung walang knowledge, walang power”.

 

Do you have any tips on how to snag a good deal when buying a new car? Share us your thoughts in the comment section below. For more money saving wisdoms, send your love by liking our Facebook page.

 

 

 

 

 

 

 

 

Michael Mutia

Former tv writer and radio DJ, now the resident ball of sunshine for MoneySmart. I like things cute and fun. When idle, I turn to Christina and Mariah for some music therapy. I write about interesting money-related articles too for our blog. So if you got any good story ideas to share, or know where to find cheap stuff, send me a shoutout at [email protected]

Michael Mutia on Google+

8 thoughts on “4 Mistakes (I Did) You Shouldn’t Repeat When Buying A New Car

  1. This is hilarious!

    Your experience would help a lot of people in making a wise money decision. Though not all people who are first time car buyers would have the same issue but it would be a nice food for thought.

    If I look back at my experience, I can surely say that I had and still have a money smart decisions. My story might help people out there.

    I bought my first two cars in one year. YES!!! you heard it right. I’m an average person.. not a millionaire or a person who belongs to a prominent family but I have my ways for money.

    I opted not to buy brand new cars since it’s a no brainer that the value would depreciate by the time you sit on it and step on the gas. Worst thing about it is that you’d be paying 3 to 5 years of INTEREST RATES. So you’d spend over half a million pesos or over the value of the car you bought at that moment.

    It’s true that we work our ass off and we need something to pamper ourselves with convenience… buying a car is one great achievement but then again we should be practical about it.

    So here’s my story…

    I started and learned to BUY and SELL Cars.. YEP!!

    I bought my first car for 50k in which I haggled it from the owner who was selling it for 83k. (this part you need to have sales skills to close the deal)

    Cars from the 1993 up to 1999 would be great for this budget and my first car was a Nissan Sentra LEC. Of course, you are not just buying it for nothing.. you should make a profit out from it.

    So I set aside about 15k to fix those minor defects (making sure that it’s not the engine having the problem because it would cost a fortune to overhaul it) like changing the oil, cleaning the radiator, fixing the lights, checking the AC, updating registration and so on.

    After doing this, you have a car that will give you comfort and peace of mind when driving. All fix and ready to go. Now it’s time to wait for the next owner of my car so I posted it on Ayosdito to sell it for a higher price which was 93k.

    Note: Think like a buyer… Filipino as we are we always ask for bargain or deals so by placing the value a little bit higher than what it was initially sold to (83k) would give you a margin to play around for discounts.

    When a potential buyer would look at your well maintained car which you are selling for 93k, they would normally ask you to sell it for 75k or 80k. (Keep in mind your expense which was a of total of 65k) you get a projected profit of 10k to 15k.

    Going back to my story….

    I sold it for 75k after driving it for a month.

    I have the convenience in travelling while earning for the item I bought.

    Right now, I’m driving a Nissan Super Saloon… I bought it for 55k and made fixes for about 20k which equals to the amount I gain from the last car.

    A well maintained ECCS Engine Nissan super saloon has a market value of 90 to 100k… (well, from where I’m from..UBEC) so you have a sale margin of 85 to 90k.

    Now my buyer from Dumaguete will be here tomorrow which is Saturday to come pick it up for 85k. that will give me 10k profit again. I will keep on doing this and roll the money while getting to drive different cars with different models and soon get my dream pick up truck. (FORD Ranger)

    Oh yes… I’m just doing a buy and sell to have the convenience of not commuting while going to work or taking my family out.

    The best decision I made was instead of buying a new car and pay a mortgage of 12 to 15k a month for 3 to 5 years I’m religiously buying stock positions in PSE which will give me millions in the next five years. This way, I’m making my money work for me instead of against me.

    I’m young and hungry for money so this is a sure money smart moves!

  2. annual insurance premium for brand new cars will cripple you!!! and there is more. car financing has very high usurious effective interest rates, about 50% because of the add-on feature of mode of interest computation. next time you buy a new car, ask your agent point blank how much will be the annual effective interest rate inclusive of the annual comprehensive insurance premium. if he knows his numbers and tell you honestly, i am pretty sure you will be flabbergasted. he he he!

  3. Very interesting. I am planning to buy a brand new small car myself, my selections were mirage 4, Vios or Almera, sent enquiry emails to car dealers already but upon learning the total price for 24 mos. to pay term, after depositing 350,000 pesos will actually lead me to almost a million all in all payment. Suddenly, I changed my mind and decided to save more for 24 mos. and then will get an Innova at a cash price. Advantage is, it has a diesel fuel (I drive a Passat limousine TDI 36,000 euro cash price), more economic and low maintenance and toyota dealer everywhere around the country for check up, sad thing is more expensive and bigger engine which means higher insurance but never mind, therefore I can save a lot to pay for it in the end.

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