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Sunday July 22, 2018
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Things to consider before applying for a car loan

Photo by NWT Capital.

CARS can be flashy and people may be blinded just to get one. It is important that before jumping into whatever car-related decisions always stick within your needs and budget because cars aren’t the be all and end all.

Be realistic, it’s the best way to get away from future regrets.

There are a lot of good car deals out there, but what are the things you should consider before applying for an auto loan?

Compare loan rates

Interest rates for car loans vary depending on your car model, repayment capacity, employer, etc. It is said that it’s not good to compare but take car loans differently. It is advisable to first check with your existing bank for preferential car loan interest rates and visit online lending marketplaces to compare them with the rates offered by other lenders. Through this you can check and balance which of the offers is best.

Check EMI affordability

Car loan Equated monthly installment (EMI) depends on interest rates, loan amount and tenure.

To check your EMI affordability, deduct your mandatory monthly expenses, existing EMIs, insurance premiums and Share Incentive Plan (SIP) contribution from your monthly income. Just remember that lenders usually prefer total loan EMIs, including your car loan EMI, to be within 40 percent of your net monthly income.

The shorter loan tenure the better

Shorter loan tenure can mean lesser interest cost. But you should keep in mind that shorter tenure leads higher EMIs. Again, balance your finances. Most lenders offer car loan tenures of up to seven years.

Go for lower loan amount

While many lenders finance up to 100 percent of your vehicle's cost, opt for a lower loan amount to reduce your interest cost. However, while doing so, don’t use your emergency fund or redeem your long term investments as that might adversely impact your financial health in future.

Prepayment considerations

Prepaying your car loan will also reduce your interest cost. However, car loans taken on fixed interest rates usually come with prepayment or foreclosure charges of as high as 6 percent of the outstanding loan amount. In selecting your lender always prefer the one with minimum charges and other limitations on prepayment.

For car loans, one bank that offers good car deal is BDO. The bank's Auto Loan features affordable rates and flexible payment terms to finance your brand new or pre-owned car whether for personal or business use.

For a lighter and more affordable monthly amortization, you can opt to increase your down payment or go for a longer loan term.

For personal brand new cars, minimum downpayment is as low as 20 percent while maximum loan term is as long as six years.

Qualifications for BDO car loans are: clients should be at least 21 years old but not exceeding 70 years old at the end of the loan term; Filipino citizen or foreigners residing in the Philippines for at least 2 years; has a minimum gross family income of P50,000 per month; and has a stable source of income from employment or business.


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