For most Filipinos, buying and owning a car is considered a major milestone. Having your own set of wheels is often equated with freedom and convenience in daily travel. This is especially true for those who live in the north and south of the metro and regularly have to travel through the expressways, or those who live in areas not covered by the usual public transport routes. For weekends, it can be a means to travel and escape the city with family and friends on road trips.
While some car owners believe it’s better to pay in cash, not everyone can afford to pay the full amount up front, especially for something as expensive as a car. With the rising costs of daily living, many Filipinos turn to auto loans to make car ownership more affordable.
Clueless about the eligibility, requirements, minimum salary, and other basics for car financing? Here’s what first-time car buyers should know before applying for an auto loan in the Philippines.
What is an auto loan?
Car financing, also known as an auto loan or vehicle financing, provides a structured way to purchase a new vehicle by letting buyers pay in installments rather than a hefty one-time payment. For those without disposable cash on hand, this makes owning a car more accessible over a longer period of time.
How do auto loans work?
Auto loans are provided by a bank or a financial institution, which lends you the money to pay for the car. The total cost is divided into monthly payments made over a period of time to make the purchase more manageable. A down payment equivalent to a certain percentage of the car loan amount is typically required for the release of the unit.
Car loans in the Philippines charge interest and other processing fees. Unlike personal loans, the car is considered the loan collateral, which means the bank or the financial institution can repossess the vehicle if you can’t make your monthly payments.
What institutions provide auto loans?
Most major banks in the Philippines provide auto loan services, each with specific criteria and documentation requirements. Aside from bank loans, it’s also possible to apply for in-house financing directly from car dealerships. Both options have varying interest rates and terms.
So what’s the better option? Should you apply for a bank loan or in-house financing when buying a new car?
As we have previously explained, banks offer the best interest rates on auto loans primarily because of their business model and risk assessment. More requirements are needed, the approval process can take longer, and there’s a higher disapproval rate.
Meanwhile, in-house financing and car dealerships are known for their quicker approvals and less stringent requirements, making them more convenient for those in a rush to get a loan. However, this option typically comes with higher interest rates compared with traditional bank loans.
For the purposes of this article, we got application forms and inquired with several major banks where we hold accounts to check the basics and payment terms. It’s a good idea to get quotations from different banks to negotiate better interest rates. Of course, it makes sense to apply with the bank you already use or are a member of.
For specific requirements, you can check out the banks’ auto loan pages. Most have online forms to fill out, loan calculators, and self-assessment forms to help determine your eligibility.
- Bank of the Philippine Islands (BPI)
- Banco de Oro (BDO)
- Philippine National Bank (PNB)
- Rizal Commercial Banking Corporation (RCBC)
- Metrobank
- UnionBank
- Security Bank
What are the eligibility requirements to apply for a bank auto loan?
Before applying for an auto loan, you need to ensure that you meet the basic criteria set by banks and lending institutions. While requirements vary per bank, the common factors include age, income, employment status and credit history.
Based on the varying auto loan plans, most Philippine banks require borrowers to be Filipino citizens or foreign nationals residing in the Philippines who are at least 21 years old and not older than 65 at the end of the loan term. Some banks have a ceiling of 70 years old or indicate that it’s possible to nominate a co-borrower under the age of 65.
The basic documents and identification documents required for employed and self-employed individuals usually include the following:
- Completely filled-out application form
- Photocopy of one government-issued valid ID like PhilSys ID/digital ID/printed ePhilID/ digital national ID, driver’s license, passport, and UMID
- For foreigners, an Alien Certificate of Registration with Work Permit
- Marriage contract (if applicable)
- Must have a mobile number and a residence or office landline
What income documents do you need to prepare?
Lenders assess a borrower’s income to determine if they have the financial capacity to repay the loan. A stable income is required, with a minimum salary threshold depending on the bank and the loan amount.
Basically, banks want to see if you have at least one year of stable employment with a regular source of income. For locally employed individuals, banks usually ask you to provide the following:
- Latest income tax return or BIR Form 2316
- Payslips from the last three months
- Certificate of employment with income (COEI)
Self-employed individuals or business owners also need to provide financial statements and bank records to prove income stability. Common requirements include:
- Photocopy of latest audited financial statements for the last two years
- Latest income tax return
- Bank statements or photocopy of passbook for the last six months
- Certificate of business registration from DTI or SEC, articles of partnership, or articles of incorporation (whichever is applicable)
- Business background/company profile
Additional documents may also be required for those employed abroad or working overseas.
How much should your monthly salary be to qualify for a loan?
The required minimum monthly household income to get an auto loan varies per bank and loan amount.
In a previous article, a BPI insider estimated that “a gross monthly income of around P40,000 will be enough to sustain the amortization payments on a starter car.”
Upon checking the self-assessment checklist on BPI’s Auto Loan website, the minimum monthly household income is pegged at P30,000.
BDO’s Auto Loan Website states: “A minimum gross family income of P50,000/month or its equivalent in US Dollars” as a requirement to apply for auto loans.
For RCBC, employed individuals must have a minimum employment tenure of one year and a minimum gross monthly income of P40,000. Likewise, Metrobank’s minimum monthly household income must be P40,000.
Take note that this figure usually applies to a combined household or family income, so it can include your spouse’s or parents’ income if you live in the same household.
Banks usually study your credit history. A good credit score increases your chances of approval and may qualify you for lower interest rates. If you have a history of unpaid debts, late payments, or loan defaults, lenders may reject your application or impose higher interest rates.
While it’s not specified as a requirement, some bank representatives said it’s helpful to provide bank statements from other banks to help strengthen a loan application.
What are the other key factors to consider before applying for an auto loan?
Once you’ve determined you’re eligible, you can study the different choices available. Some key factors to consider include the loan terms and interest rates, down payment requirements, monthly amortization and budgeting, and possible hidden fees and charges.
Auto loans usually come with different loan terms and interest rates, which you’ll want to study carefully. Fixed Rates remain the same throughout the loan term, making monthly payments predictable. Variable Interest Rates may change based on market conditions, which can lead to lower initial rates but fluctuating monthly payments.
The loan duration refers to how many years it will take you to pay the loan back. Most banks offer loan terms ranging from 12 to 60 months or one to five years. Shorter loan terms mean higher monthly payments but lower overall interest costs. Longer loan terms mean lower monthly payments but higher interest payments over time.
The down payment requirement is another factor to consider. This is the initial amount you pay up front before securing an auto loan. In the Philippines, banks and lenders typically require a minimum down payment of at least 15% to 30% of the car’s total price. Some banks may offer lower down payment options, but this often comes with higher interest rates and stricter approval conditions.
By shelling out for a higher down payment (if you can), you can lower the loan amount and monthly payments. This results in lower interest payments over time and improves your approval chances.
Before committing to an auto loan, you’ll want to calculate your monthly amortization (installment) to ensure it fits within your budget. Some banks have online loan calculators, or you can manually compute all the key factors based on the loan amount, interest rate, and terms.
When deciding how much you’ll be paying for a month, you’ll also want to consider your other financial obligations (like other housing loans, personal loans, credit card payments). Then, there’s the often forgotten actual cost of car ownership, which includes fuel, maintenance, registration, and insurance. If something breaks down, you’ll need to buy car parts, so it’s better to have a buffer. Plus, you'll need a secure place to park your vehicle, which is another challenge and extra expense not just at home, but every time you go out.
Bottom line, you want to have enough savings or an emergency fund to ensure you can cover payments in case of unexpected expenses.
First-time buyers should know that auto loans are a significant financial commitment that requires you to have a stable source of income to make the monthly payments for the next one to five years.
Top Gear Philippines readers previously shared that they’ve had to sacrifice many comforts like travel, gadgets, new phones, meals, their daily Starbucks, and their free time to work to fully own their dream car. If those are things you can’t give up, you’ll need to reassess your lifestyle or ask yourself whether you can afford a car in the first place.
Aside from the loan principal and interest, auto loans may come with additional hidden fees and charges that borrowers should be aware of. Banks may charge for administrative and processing fees for loan applications, late payment penalties, and insurance costs. For instance, if you fail to make payments on time, some banks impose penalty charges, typically around 3% to 5% of the overdue amount.
Did you know that aside from late payments, some lenders also charge early repayment fees? These are penalties imposed if you choose to pay off your loan earlier than the agreed term to compensate for their potential interest loss.
Most auto loans also require comprehensive car insurance for the duration of the loan. Some banks offer in-house insurance, while others allow you to purchase from third-party providers.
What are the steps to applying for an auto loan?
- Research and compare rates of different lenders.
- Check if you’re eligible to apply using self-assessment tools or by inquiring at your preferred bank.
- Gather necessary documents (valid ID, proof of income, employment certificates, etc.).
- Submit the application and wait for approval (this can be done online or in the bank itself).
- Review the loan terms and sign the agreement.
- Wait for the disbursement and make the car purchase.
Got any other car financing tips to share? Let us know in the comments section.
