Say you have finally determined which car brand and model you are going to buy—the next step would probably be deciding on how you would buy it. The cheapest way to do so, of course, is to buy in cash. This way, there can even be discounts given depending on the dealership. Please bear in mind also that buying in cash is a legitimate consumer option under the law.
But not all car buyers can afford to pay in full upfront. That’s why there are a lot of vehicle financing options to choose from. Of course, these legitimate financing schemes charge the ‘cost of borrowing’ in the form of interest rates. Financing schemes offering zero interest rates should be avoided at all costs, unless it is offered by the dealer itself.
OTHER STORIES YOU MIGHT HAVE MISSED:
Review: 2023 Jetour Dashing 1.5T 6DCT
MMDA riding school set to open by third quarter of 2023
Bank financing
Banks offer the best interest rates on auto loans primarily because of two things: the business model and the risk assessment. The business model of banks allows them to make profits by lending money and charging interest to their clients. These can either be personal, business, housing, or car loans. To be successful in the business, banks must compete among themselves for the best interest rates to win more clients. Thus, if taking the bank financing option, it is a good idea to get multiple quotations from different banks to negotiate better interest rates.
Since banks are relatively conservative in nature, they perform risk assessments on their potential clients—which takes time. During your car loan application, banks would put your credit history, income and income stability, and assets and liabilities under the microscope. This is to ensure that you, as a client, can commit to your obligations on your proposed terms of payment. The amount of loan approved would also depend on your equity as well as your reputation with the bank.
Due to the circumstances stated above, most tend to be disapproved during the application process. The second option is to opt for in-house financing.
OTHER STORIES YOU MIGHT HAVE MISSED:
The eco-friendly TOM scooter is like an electric Honda Motocompo
The mild-hybrid Toyota Hilux shows it can still kick up some dust
In-house financing
In-house financing offers the quickest approval because of two things: the business model and convenience. Unlike banks, dealerships only make profits on car sales and services. In order to make profits, dealerships have to sell more—the more cars they sell, the more cars come back for service. And to do so, dealerships offer a streamlined process with much more lenient requirements for quick approval.
Dealerships also offer low to zero down-payment options, unlike the minimum 20% DP from most banks. You can also get a lot of freebies when availing yourself of in-house financing. However, all these freebies and conveniences come at the expense of a higher interest rate than that of banks.
Which one should you choose?
Ultimately, the choice of in-house versus bank financing falls on the financial capability of the buyer. While banks offer the best interest rates, in-house financing offers an alternative for those who are not qualified or have had their bank loans disapproved.
