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.