For many Filipinos, buying a car is something to cross off their bucket list. Getting that first set of wheels means getting to enjoy comfort, convenience, and practicality.
But you need money—lots of it—for this sizable investment. The cheapest sedan in the market today costs over half a million pesos. Even if you have that amount in the bank, you shouldn't spend it all on a car.
Good thing the car loan process is simple. With a car financing scheme, you can buy your dream car without making a full cash payment.
How Does Car Financing Work?
You probably know how car financing works from friends or family members who have their own cars. But how does a car loan work in the Philippines?
With car financing, a bank or financial institution lends you the money to pay for the car. This car loan breaks up the cost into monthly payments over a period of time, making a car purchase more affordable. Usually, you need to make a down payment equivalent to a certain percentage of the car loan amount.
Car loans in the Philippines charge interest and other processing fees. The car is the loan collateral, which means the bank or the financial institution can repossess the vehicle if you can’t make your monthly payments.
5 Car Financing Options in the Philippines and How They Work
Did you know that there's more than one source of car financing in the Philippines? Securing a car financing option is essential to the car loan process. Here are a few to choose from.
👉 Bank Financing
In this car financing scheme, the bank or a lending company lends you a specific amount so that you can buy a car. You’ll then pay the borrowed amount in a series of monthly payments over the tenure or period of the loan, generally between 12 and 60 months. But other than repaying the loan amount, you’ll also be paying the interest.
Bank financing is also known as direct lending because the car buyer gets a loan directly from a bank instead of going through the dealership. Financing a car purchase through this loan is ideal if you have a good credit standing with the bank.
Pros of Bank Financing
Bank financing is a better option for purchases that require a higher loan amount, like a car purchase. Aside from the higher amount that you can loan, banks also offer lower interest rates than dealer financing. Moreover, you can compare car loans from different banks and enjoy a more personalized service.
Cons of Bank Financing
Of course, there’s a downside to bank financing as well. For one, car loan approval may take a few days. Getting approved for bank financing is also more challenging because you need to have a good credit history or be in good credit standing with the bank. It also requires a higher down payment than dealer financing.
👉 Dealership Financing
Another way to pay for a vehicle purchase is through dealership financing. It's the best option if you prefer the convenience of buying and funding your car in just one place.
Essentially, there's a contract where you agree to pay your dealer the loan amount plus interest. The dealer has a partner bank or lender that processes the loan and collects your payments.
Pros of Dealership Financing
Dealership financing makes the car loan process easier and faster and offers car buyers convenience. You can finish the vehicle purchase and financing in one location and transaction, usually at the dealership showroom or office. Usually, there are freebies thrown in as well.
There are various car financing options from multiple partner banks and lending companies, so financing can be negotiated. You can also get a lower down payment with dealership financing.
Cons of Dealership Financing
Some drawbacks of dealership financing include higher interest rates and hidden charges, which means you’ll be paying higher financing costs. Also, like a car loan from a bank with a long repayment period, your car will depreciate when you’re done paying it off.
👉 Credit Card
Using a credit card to buy a car is possible only if your credit limit is high enough to cover the cost. On top of that, there are many fees that you may need to cover.
This type of transaction can be arranged by the dealer and requires the issuing bank's approval. Remember, though, that not all dealerships accept this car financing scheme via credit card. Some dealers may just accept a portion of the car’s selling price to be charged to the credit card.
Pros of Credit Card Payment
With a car purchase costing hundreds of thousands of pesos, you can earn thousands of credit card points, miles, or cashback. Buying a car with your credit card can work if you immediately pay off your balance. Otherwise, the interest will accumulate and make the rewards pointless.
Cons of Credit Card Payment
As credit card interest rates are higher than that of regular car loans or dealership financing, expect to pay more on interest. The interest can be staggering if you can’t fully pay off your credit card balance after buying a car.
Moreover, an expensive purchase like a car can increase your credit utilization drastically, which can negatively impact your credit score.
👉 Home Equity Loan
This car financing option in the Philippines enables you to borrow money against your home's equity or appraised value. The cash you'll get from a home equity loan may be used to buy a car.
Pros of Home Equity Loan for a Car Purchase
You can enjoy a longer repayment term for a home equity loan. While car loans usually last five years, home equity loans can take as long as 30 years, with lower monthly payments.
Cons of Home Equity Loan for Car Purchase
The risk of your home getting foreclosed is high, especially if you can’t make your repayments. You may have an extended repayment period and lower monthly payments, but remember that a car doesn’t appreciate over time.
A car will lose between 15% and 20% of its value each year. As a depreciating asset, it won’t be worth much after you pay it off.
👉 Upfront Cash Payment
Then, of course, there’s upfront cash payment, the car financing option everyone would like to avail of if they had the resources. You’re paying for a car in full and in cash, so you don’t have to apply for a car loan and make monthly repayments. It’s like buying something in a store and going home with it!
Pros of Cash Payment
When you buy a car in cash, you don’t need to worry about your budget and whether you can make your monthly repayments. Once you’ve paid for the car, you already own it.
As such, you also don’t have to pay any interest and loan processing fees. You can even enjoy huge discounts and freebies when you pay in cash.
Cons of Cash Payment
Paying your car’s monthly amortizations can help build your credit history. If you pay in cash, you can’t use your monthly repayments to build credit. You also part with a significant amount of money when you make an upfront cash payment. Instead of using it for emergencies, savings, investments, or paying off other debts, you just used it to buy a car.
Car Loan Process in the Philippines: 6 Steps You Need to Take
If it’s your first time getting a car, it pays to know the car loan process. You’ll save yourself from the hassle and ensure a quick approval and release.
1. Check If You're Qualified for a Car Loan
Start by checking if you meet the bank's car loan requirements. Find out the minimum salary for a car loan in the Philippines. More importantly, ensure a good credit score to get pre-qualified for a loan.
✔️ Car Loan Eligibility Requirements
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)
- Filipino citizens living in the Philippines and abroad (including OFWs)
- Foreign residents in the Philippines with qualified Filipino co-borrowers
- Monthly salary or household income: At least ₱40,000
- 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 loan application. Banks use credit scores to evaluate a borrower's ability to repay a loan.
If your credit score is high, you're likely to get approved for a 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 in the Philippines and how much you can afford to borrow. You can answer an online pre-qualification test before applying for an auto loan in Security Bank, Metrobank, or PSBank.
- Security Bank Auto Loan Pre-Approval Quiz
- Metrobank Car Loan Pre-Screening Checklist
- PSBank Auto Loan with Prime Rebate Pre-Screening Checklist
2. Compute How Much You Can Borrow
How much can you afford to pay monthly without living paycheck to paycheck? It's crucial 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. Ensure that the amount you borrow matches your budget to avoid vehicle repossession.
To know the amount you can realistically afford, check out these factors that affect the cost of a loan for car financing:
- 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 pay less interest over time. On the other hand, a long term leads to lower amortization, but you'll pay more interest.
Also, consider other car costs, 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. You need to pay attention to them so you can make full and timely monthly payments for your loan.
Read more: Car Loan Restructure in the Philippines: Why You Should Apply for One and How to Do It
👉 How to Compute a Car Loan in the Philippines
Most banks in the Philippines have loan calculators on their respective websites. Use them to estimate the cost of borrowing money for your car purchase.
- UnionBank Auto Loan Calculator
- RCBC Auto Loan Calculator
- Robinsons Bank Auto Loan Calculator
👉 How to Use a Loan Calculator for Financing a Car
Using an online loan calculator to compute the car financing cost is pretty simple. Just choose your preferred vehicle type, down payment, and repayment term. The 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), the 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.
Using PSBank’s Auto Loan calculator, let’s try a sample computation:
If you want a 2023 Toyota Avanza (1.3E Gas A/T) that sells for ₱1,004,000, the minimum down payment will be ₱200,800.00, which is 20% of the selling price. If you choose to pay in 60 months, your monthly amortization will be ₱17,437.
3. Compare Loans
Researching and comparing auto loans in the Philippines allows you to determine which is best for 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 take out loans for. RCBC, PSBank, Security Bank, and China Bank Savings offer loans for both brand-new and secondhand cars for personal or business use.
Banks set different maximum age limits for used cars, too. For example, Security Bank accommodates vehicles up to 11 years old.
On the other hand, Metrobank doesn't accept secondhand cars as collateral for a vehicle loan. Neither does it allow borrowers to use loaned cars as taxis or ride-hailing services.
Need more time to study your car financing options? Use a comparison website such as Moneymax to save time and effort. You'll find a loan that suits your specific needs and budget in just a few clicks. Moneymax’s online service is free to use anytime and anywhere.
Read more: Which is the Best Bank for a Car Loan in the Philippines?
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4. Complete the Car Loan Requirements
One last thing you must do before filing a loan application is to prepare all the documents needed to prove your identity and income.
Here are the common car loan requirements in the Philippines:
- 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
5. Submit Your Car Loan Application
Most banks that offer loans for vehicle purchases accept both walk-in and online applications. You can submit your completed application form and supporting documents at the nearest branch.
However, it’s more convenient to use the bank's online facility for a loan application. Just note that if you apply online, you'll have to scan or take photos of your documents and upload the images on the bank's website.
6. Wait for the Car Loan Approval and Release
How many days for a car loan approval in the Philippines? Banks in the Philippines take as fast as one banking day to process and decide on an auto loan application. If your 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, 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 can help you find the best car insurance quotes and deals.
After completing all these post-approval steps, you can finally drive home your new four-wheeled baby!
Car Loan Process FAQs
1. Is getting a loan to finance an auto a good idea?
Yes! The biggest benefit is you get to own a car without having to pay the full price upfront. While paying in cash means getting significant discounts or not paying interest, not everyone can afford this mode of payment. An auto loan is an ideal solution.
2. Who becomes the owner of the car financed through a loan?
When you finance a car purchase through an auto loan, the bank or the lending company becomes the car owner since they paid most of the unit’s selling price. You’ll become the car's legal owner once you’ve settled all your dues and obligations with the bank.
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, you must be diligent and responsible about car care and loan payments. Otherwise, you’ll run the risk of getting your car repossessed (or “hatak”) by the bank.
Related: Fully Paid Car Loan? Here’s What You Should Do Next
3. What is the chattel fee?
The chattel fee, also called the chattel mortgage fee, is one of the charges you must pay to the bank to acquire the auto loan. The vehicle (or chattel) acts as security for the loan, with the lender maintaining interest.
4. How much is the chattel mortgage fee in the Philippines?
If you want to know how to compute your chattel mortgage fee, note that banks in the Philippines typically charge 2% to 3% of the loan amount as the chattel mortgage fee. You can multiply that with the car loan amount to get an indicative price for your chattel mortgage.
5. Can I finance a secondhand car through a 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 loan to reimburse your purchase or refinance a secondhand car.
6. My loan application was rejected. What should I do?
Rejection happens, but it’s not the end of the world! If your auto loan application got denied, know that you may still reapply, granted that your documents are complete and accurate.
If not, there are other options. Take the following tips into account.
✔️ Check the Car Loan Requirements Again
Before you panic and claim that things will go awry from here, check all the documents you’ve submitted. There may be some details you’ve overlooked, or some pieces of information not updated or consistent with other documents.
Mistakes seemingly trivial as a wrong address can delay your application. Don’t worry, as the bank normally tells applicants that they lack documents or have inaccurate details.
✔️ 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 if your credit record is updated. If you’ve already updated them, try applying again. Otherwise, settle all your debts and pay financial obligations on time to improve your credit standing.
✔️ Check the Amount You’re Borrowing
The amount you’re borrowing may be another issue. While some banks may lend borrowers up to ₱1 million and above, that doesn’t mean you can easily qualify for it. It will still depend on your income.
Your application may be denied if the amount you’re borrowing is not proportional to your income. Remember, banks always determine if the borrower can repay the loan.
✔️ Choose the Right Bank
Apply with a bank where you already have a long banking relationship and a good credit standing. The bank can vouch for you regarding your ability to repay the loan and assist with securing financial documents and requirements. Not to mention that you’ll enjoy a more personalized level of customer service.
The car loan process requires saving, planning, research, and making computations. If you can do that, the bank will be less likely to decline your car loan application. You don't have to worry about repossession, too.
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!
|Car Insurance Company||Maximum Total Sum Insured||Overnight Accommodation||Towing Services||Vehicle Removal Crane Services|
|₱5 million||Up to ₱2,000||Up to ₱5,000||₱10,000|
|₱7.5 million||Up to ₱1,000||Up to ₱4,000||Up to ₱8,000|
|₱5 million||Up to ₱2,000||Up to ₱5,000||Up to ₱10,000|
OONA Insurance (formerly MAPFRE)
|₱5 million||Up to ₱3,000||Up to ₱5,000||Up to ₱10,000|
|₱3 million||Up to ₱2,000||Up to ₱5,500||Up to ₱15,000|
-  How Do Car Loans Work? (Forbes)
-  Why Does a New Car Lose Value After It's Driven off the Lot? (CarsDirect)
-  Security Bank Auto Loan Pre-Approval Quiz
-  Metrobank Car Loan Pre-Screening Checklist
-  PSBank Auto Loan with Prime Rebate Pre-Screening Checklist
-  UnionBank Auto Loan Calculator
-  RCBC Auto Loan Calculator
-  Robinsons Bank Auto Loan Calculator
-  What is a Chattel Mortgage? (Toyota Fleet Management)