Negotiating Lower Payments on Your Car Loan

Published: February 19, 2016 | Updated: November 19, 2019 | Posted by: Carlo Miguel Castañeda | Loans

a client and a sales agent negotiating about car loan
A new car is a large financial responsibility. You’ve got the fluctuating prices of fuel, payments on insurance, and the repayment of the loan you took out when you purchased the car.

Juggling the repayment of a car loan is a struggle if improperly managed. While you’ve already reduced costs in every single corner of your financial life in order to make room for the car, you cannot predict every other expense that comes at you.

So how can you make owning a car less of a financial burden? Here’s a few tips on negotiating lower payments on your car loan.

A Higher Downpayment

Banks are a little more lenient with lending these days, and the rate at which people do pay back their loans (in general) in 2015 is at 80%. The requirement to get a car loan is pegged at Php 40,000 household income (not monthly income), and most banks ask for 20% of the car’s amount as a downpayment.

The 20% is a minimum. You can go as far as 50% of the car’s total amount in order to pay less on your monthly amortization, and allow you to pay off the loan in a much shorter span of time – usually within three to five years with constant payment.

Work your Bank

Some families have long-standing accounts with banks. If you or any members of your nuclear family have an account with a bank, you may be able to get quicker approval on a loan, and lower terms.

A long-standing relationship with a bank won’t get you eye-popping discounts, but you can get anywhere between 2 to 4% per annum depending on your status as a client. While you’re at it, look out for any promos that your bank may be offering on auto loans.

Some offer 0% interest for a year, but you’ll also need to crunch the numbers on some promos as they might come with higher payment terms that aren’t worth it.

In-house Financing?

Some car dealers offer to finance the purchase of your car in-house, and while you might think that this works the same way as a car loan would, that isn’t the case. Your car dealer acts as the middle-man between you and the bank, and they do get a little something for their trouble – which you end up paying for.

If you’d like to compare the rates between in-house financing and getting an auto loan from a bank, that should be as far as you go. You could get the bank to lower or match outside rates based on comparisons of various loans.

Loan Modification

A loan modification is an option for people who bought their car at a higher and longer loan repayment term. In essence, it allows you to change the terms at which you pay your loan. Some banks offer this option, allowing you to pay your loan at more flexible terms, or lower interest rates.

Not to be confused with loan refinancing, which allows you to change the terms of your loan by re-borrowing the amount to overwrite the previous loan.

Final Thoughts

Getting a car – new or second-hand – is something you need to prepare your finances for. Before you consider buying a car, build up your savings and eliminate as much debt as is possible. Taking on the financial responsibility of a car can be balanced if your finances are in complete order.