Getting a Car Loan in the Philippines? Here’s What You Need to Know
For many millennials, buying a car is something to cross off their bucket list. Having that first set of wheels means you’re on the right track to becoming a full-fledged adult. But you need money—lots of it—for your biggest investment ever.
As a young professional, you aren’t making enough money to drive your dream car out of the showroom and into your garage. The cheapest sedan in the market today costs over half a million pesos. Even if you have that amount in the bank, you won’t dare spend it all on a whim. Because yes, you’re a responsible adult who’s got bills to pay and maybe even mouths to feed.
Good thing, you can avail of a personal loan that can help you make monthly payments for a car instead of a one-time payment of the unit’s full price. It’s easier to manage your finances that way.
Table of Contents
- How Car Loan Works in the Philippines
- Is Getting a Car Loan a Good Idea?
- Who Becomes the Owner of the Car Acquired Through a Loan?
- What are the Types of Car Loans in the Philippines?
- Can I Buy a Second Hand Car with a Car Loan?
- Where to Get a Car Loan
- How to Apply for a Car Loan in the Philippines
- My Car Loan Application Was Rejected. What Now?
- Final Thoughts
How Car Loan Works in the Philippines
How car loan works is quite simple. It’s a financing scheme in which the bank or a financial institution lends you a specific amount, so you can buy a car.
You’ll then be paying the borrowed amount in a series of monthly payments over the tenure or period of the loan, normally between 12 and 60 months. But other than repaying the car loan amount, you’ll be also paying the interest.
Is Getting a Car Loan a Good Idea?
Yes! The biggest benefit of a car loan is that you get to own a car without having to pay the full price upfront. While paying in cash easily means getting big discounts or not having to pay the interest since you don’t have to borrow money, not everyone has the means to afford this mode of payment. And a car loan comes in as an ideal solution.
Who Becomes the Owner of the Car Acquired Through a Loan?
When you finance a car purchase through an auto loan, the bank or the lending company becomes the owner of the car since they’ve paid the majority of the unit’s selling price.
You’ll become the legal owner of the car once you’ve settled all your dues and obligations with the bank.
Just remember, though, that within the life of the loan agreement or contract, you must take proper care of the car, from maintenance to insurance.
With this in mind, it’s important that you’re diligent and responsible enough over car care and loan payments. Otherwise, you’ll run the risk of getting your car repossessed (or “hatak”) by the bank.
What are the Types of Car Loans in the Philippines?
Generally, there are two types of car loans prospective buyers can avail of in the Philippines: secured and unsecured.
Secured car loans require collateral. In this case, it’s the car that you’ve just driven out of the dealership. If you fall behind your payments over a few consecutive months, the bank or lending institution will get your car. Some banks apply this rule to cars for personal use. But other banks also apply this to auto fleet financing, wherein borrowers intend to buy three or more cars for their business.
Unsecured car loans, on the other hand, will not require you to turn your car into collateral. Instead, the bank will charge you a high interest rate. To qualify for an unsecured car loan, you’ll have to prove your good credit standing.
Can I Buy a Second Hand Car with a Car Loan?
Yes! A lot of banks allow borrowers to use the loaned money for the purchase of a secondhand vehicle. Similarly, you may use your car loan for reimbursing your purchase or refinancing a secondhand car.
Where to Get a Car Loan
Dealerships and banks provide financing through car loans. In-house financing from dealers offers convenience through an easy application process, fast approval, and freebies. But usually, it’s more expensive than bank financing.
You can get 4% to 5% lower interest rates by borrowing directly from a bank. For first-time car buyers, saving money on interest payments is absolutely easier on the budget.
Applying for a bank loan on your own requires a bit more work and patience, though. Here’s what you need to do when buying a vehicle through bank financing.
How to Apply for a Car Loan in the Philippines
Step 1: Check if You’re Qualified for an Auto Loan
Be a responsible borrower—start off by making sure you meet the bank’s requirements, have a good credit score, and get pre-qualified for a loan.
Generally, banks in the Philippines accept auto loan applications from borrowers with these minimum qualifications:
- Age: 21 years old (not older than 65 when the auto loan matures)
a. Filipino citizens living in the Philippines and abroad (including OFWs)
b. Foreign residents in the Philippines with qualified Filipino co-borrowers
- Monthly household income: PHP 30,000 to PHP 50,000
- Employment/Business status: Two years of employment or profitable business operation
Good Credit Score
As a first-time borrower, you may not realize how your credit score matters in your car loan application. Banks use the credit score to evaluate a borrower’s ability to pay back a loan. If your credit score is high, you’re likely to get approved for a car loan with a low interest rate.
It helps to check your credit score—and repair or correct it if necessary—before you apply for an auto loan.
Auto Loan Pre-Qualification
Getting pre-qualified lets you know if you’re ready to apply for a car loan and how much you can afford to borrow. It involves answering an online pre-qualification test if you’ll apply for a car loan in BPI, Metrobank, or Security Bank.
- BPI Family Auto Loan Online Pre-qualification
- Metrobank Car Loan Pre-Screening Checklist
- Security Bank Auto Loan Pre-Approval Quiz
Step 2: Compute How Much You Can Borrow
How much can you afford to pay on a car loan every month without living paycheck to paycheck?
It’s extremely important to figure that out because monthly loan payments will take a portion of your budget for the next three to six years. If you fail to repay your loan for a long time, the bank will take your car away. You don’t want things to end up in vehicle repossession, so be sure that the amount you’re going to borrow matches your budget.
Factors That Affect the Cost of a Car Loan
Decide on these crucial factors to know the amount you can realistically afford to loan:
- Vehicle type and price: Will you buy a brand-new or used car? What car make and model are you considering? Make sure your choices are well within your budget.
- Down payment: Banks charge a down payment of 20% to 50% of a vehicle’s selling price. Your chosen down payment will affect the amount of your monthly amortization. The higher it is, the less you’ll borrow from the bank. You’ll save more on interest payments if you choose a higher down payment.
- Length of the loan: Car loans in the Philippines have repayment terms ranging from one to six years. A shorter-term raises your monthly amortization, but you’ll be paying less interest over time. On the other hand, a longer-term leads to lower amortization, but you’ll be paying more interest.
Consider also the other costs of owning a car such as insurance, fuel, maintenance, and repairs. Although they aren’t included in your loan repayments, car ownership costs are unavoidable expenses that comprise part of your budget. If you overlook them, you might struggle with making full and timely monthly payments for your car loan.
How to Compute Car Loan in the Philippines
Most banks in the Philippines have a loan calculator on their respective websites that you can use to estimate the cost of borrowing money for your car purchase.
- BDO Auto Loan Calculator
- BPI Family Auto Loan Calculator
- Metrobank Car Loan Calculator
- PSBank Auto Loan Calculator
- Security Bank Car Loan Calculator
How to Use a Car Loan Calculator
Using an online loan calculator to compute the cost of financing a car is pretty simple. Just choose your preferred vehicle type, down payment, and repayment term. The car loan calculator may also ask you to enter the vehicle’s selling price and other related information.
The results will show you the loan amount (usually 50% to 80% of a car’s selling price), down payment amount, and monthly amortization. You can re-compute to see how these amounts will change if, let’s say, you select a higher or lower down payment and a longer or shorter term.
Step 3: Compare Car Loans
Researching and comparing car loans in the Philippines allow you to find out which car loan is best for you based on your budget. Specifically, check the interest rate, loan amount, down payment, and repayment terms of different lenders.
Consider also the type of vehicle you can loan in a bank. BDO, BPI, EastWest Bank, PSBank, and Security Bank offer car loans for both brand-new and second-hand vehicles for personal or business use. Banks set different maximum age limits for used cars, too. For example, BPI provides financing for vehicles not older than five years old, while Security Bank accommodates cars up to 11 years old.
On the other hand, Metrobank doesn’t accept second-hand cars as collateral for a car loan. Neither does it allow borrowers to use loaned cars as taxis or ride-hailing services.
Too busy to study your car loan options? Use a car loan comparison website to save time and effort. In just a few clicks, you’ll find a loan that suits your specific needs and budget. The online service is free to use anytime and anywhere.
Step 4: Complete the Car Loan Requirements
One last thing you need to do before you file a car loan application: prepare all the documents needed to prove your identity and income.
Document Requirements for Car Loan in the Philippines
Most banks require these supporting documents from borrowers:
- Valid government-issued IDs (passport, driver’s license, SSS ID/UMID, OFW ID, Alien Certificate of Registration, etc.)
- Certificate of employment, payslip, or income tax return (ITR) for local employees
- Business registration certificate, business permit, bank statements, ITR, and audited financial statements for self-employed individuals
- Proof of remittance, payslips, or certificate of employment for OFWs
Step 5: Submit Your Car Loan Application
Most banks that offer car loans accept both walk-in and online applications. You can submit your accomplished application form and supporting documents at the nearest branch. A more convenient option is using the bank’s online facility for car loan application. If you’ll apply online, you’ll have to scan or take photos of your documents and upload the images on the bank’s website.
Step 6: Wait for Your Car Loan Approval and Release
Banks in the Philippines take as fast as one banking day to process and decide on an auto loan application. If your car loan is approved, the bank will require you to do the following before it’s released:
- Sign your loan documents
- Submit any additional requirements
- Pay the down payment and other loan-related fees such as chattel mortgage fee (2% to 3% of your loan amount), handling fee, and one-month advance payment (if applicable)
- Get a comprehensive car insurance policy
You have two choices when getting car insurance: through the bank or an online broker. Although the bank offers convenience, an online broker like MoneyMax.ph can help you find the best car insurance quotes and deals.
After you’ve done all these post-approval steps, you can finally drive home your new four-wheeled baby!
My Car Loan Application Was Rejected. What Now?
Rejection happens, but it’s not the end of the world! If your car loan application gets denied, know that you may still reapply, granted that your documents are complete and accurate.
If not, there are other options to go for. Take the following tips into account.
1. Check Your Requirements Again
Before you panic and claim that things will go awry from here, check all the documents that you’ve submitted. There may be some details that you’ve overlooked, and some pieces of information are not updated or consistent with other documents. Mistakes that are as seemingly trivial as a wrong address can actually delay your application. Don’t worry, as the bank normally tells applicants that they have lacking documents or inaccurate details.
2. Fix Your Credit Score
Your credit score determines your credibility as a borrower. It shows the lenders how trustworthy you are. As such, there’s a chance that the reason for the rejected application is your low credit score. If it’s okay for you to delay your car purchase for at least a few months or a year, use the time to fix your credit score as soon as possible.
Check first if the credit records are updated. If you’ve updated them, try applying again. Otherwise, settle all your existing debts and pay financial obligations on time to improve your credit standing.
3. Check the Amount You’re Borrowing
The amount you’re borrowing may be another issue. While some banks may be able to lend borrowers up to PHP 1 million and above, that doesn’t mean you can easily qualify for it. It will still depend on your income.
If the amount you’re borrowing is not proportional to your income, your application may be denied. Remember, banks always determine if the borrower can actually afford to repay the loan.
4. Consider Alternatives
Loans are not the only source of your car financing. There are a lot of alternatives to go for, some of which include the following:
Use Your Credit Card
However, you have to make sure that you have a high credit limit. On top of that, there are many fees that you may need to cover. Just remember, though, that not all dealerships accept this financing scheme.
Try In-House Financing
These loans are directly offered by the dealer. But remember that some dealers may charge a high interest rate.
Consider Getting a Home Loan
If you’re doing a major renovation or you’re buying a new home, there may be a surplus from the money that you’ve borrowed, which you can use to fund your car’s down payment. If you want to use the borrowed amount fully for car purchase, we recommend that you talk to the loan officer to know if this is allowed or there are certain conditions that you need to meet.
Getting a car loan takes plenty of planning, research, computations, and saving up. If you’re able to do that, the bank will less likely decline your loan application. You don’t have to worry about repossession, too.
Lastly, a quick reminder: While your car is on loan, get your car insured, maintain it regularly, and always drive safely to avoid any hassle.
Get a Free Car Insurance Quote!
Looking for car insurance? Below is a list of top car insurance companies and their features. Compare your options and get a free quote from Moneymax!
-  BPI Family Auto Loan
-  Metrobank Car Loan
-  Security Bank Auto Loan
-  BDO Auto Loan Calculator
-  BPI Family Auto Loan Calculator
-  Metrobank Car Loan Calculator
-  PSBank Auto Loan Calculator
-  Security Bank Car Loan Calculator
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