Car Financing

Author: Vince Pornelos

One Step At A Time - A step by step guide to auto financing

So you've found the car you want by browsing our buyer's guide. Now comes the time to find a way to get it. Here's a quick flow guide on how to get the best financing deal for you.

Step 1: Get approved

Now, there are actually two ways you can go about the first step. You can start by going straight to your bank and ask the manager about acquiring an auto loan. Your bank will then proceed to sort everything out for you. This is more convenient especially if you've been with your bank for a long time and they have your entire financial record in hand. It'll also allow you to almost skip straight to signing the papers for your car.

The second way is by going straight to the dealership and asking for in-house financing. Getting approved with them is easy, and usually takes only a few hours from the time you fill up the credit approval form to receiving word from the bank. Take note that dealer-sourced banks do a mandatory credit investigation by perusing your bank records, calling your house and work to verify certain details, and will also have significantly higher interest rates than going straight to your own bank.

Step 2: Submit the requirements

If you've proceeded via dealer-sourced financing, on the day of the release of your car, they'll ask that you furnish some documents and other requirements. Requirements vary per bank, but the most common include valid IDs, bank statements, billing statements, income tax returns, postdated checks corresponding to the number of months that your payment term will take, and of course, the downpayment.

Step 3: Sign the paperwork

After the requirements, your dealership's sales agent will present you with plenty of paperwork and documentation to sign. If you have a spouse, it is common that he/she will automatically be a co-maker as the car will most definitely be conjugal.

Step 4: Go drive your new car

With all that set, you can now proceed to your new car waiting in the releasing area of your dealership. Be sure to check that all the accessories, tools, and free items (tint, rustproof coating, mats, etc) are installed properly, and pay attention as your sales agent takes you through the car. With that out of the way you can now take your new car home, and don't forget to smile.

STATEMENT OF TERMS

Glossary

Here are the definitions of some terms common auto financing

  • Downpayment (DP) - The percentage of the car's list price that the consumer wants to pay. Minimum downpayment is usually at 20%, though with the advent of promo periods, DPs can be reduced to an even more affordable 10%.
  • Amount to be financed - remaining percentage of the car's list price that is to be shouldered by the bank and applied interest to.
  • Interest Rate - The percentage applied by the bank on the amount to be financed. The interest is factored into the amount and divided into the corresponding number of months. More on computations later.
  • Term - the amount of time the buyer wants to pay for the car (i.e. 12, 24, 36, 48, or 60 months)
  • Promissory Note with Chattel Mortgage - A signed contract with the bank stating all the details about the vehicle being purchased, the terms of payment, the interest rate applied, monthly amortizations, and the buyer's information. It is accompanied with a Chattel Mortgage Fee, a compulsory fee paid to the bank for handling the transaction.
  • Co-Maker - A co-signatory on the promissory note. Usually the buyer's spouse
  • Co-Buyer -Not to be confused with co-maker, because the co-buyer's name appears on the registration of the vehicle, whereas a co-maker is simply another signatory on the financing documents.
  • Credit Investigation (CI) - A process the bank undergoes to verify information about the person requesting an auto-loan
  • Credit Management Association of the Philippines (CMAP) - a monitoring agency for credit in the Philippines.

AUTO FINANCING TIPS

1: DON'T BE AFRAID TO HAGGLE

You'll be paying for your car for the next 12 or so months, so haggle for the best interest rate possible so that its easier on your pocket.

2: MAKE A LARGER DOWNPAYMENT

A larger downpayment means a smaller amount to be financed, which means that there's less of an amount to be applied interest to and makes for more affordable monthly payments.

3: IT PAYS TO BE LOYAL

Try to stick to your bank, especially if you've had an account or done business with them for a while, as they'll take good care of you when it comes to getting your new car.