Beginner's guide to financing a used car in the Philippines

For many, buying a car is no less than achieving a significant milestone in their lives. Depending on the buyer's priority and budget, it can be a new or pre-loved vehicle, but that hardly makes any difference as it all boils down to the owner's happiness and excitement. However, there are a few obstacles that a car owner has to overcome (be it a new or used car) and that’s understanding the financing part of the purchase.

For many, even the term car financing might seem alien and often buyers get scared with all the paperwork and the terminology used by the agent. Terms like interest rate, and down payment, followed by a bunch of signatures make the owner overwhelmed.

Fret not, as we are here by your side in every phase of the car-buying process. Educating you on aspects like financing, insurance, and whatnot. And today, our focus is on used car financing in the Philippines, so let’s get started.

Used car financing in the Philippines - Understanding the need

Car financing in the Philippines provides individuals with the opportunity to purchase vehicles affordably while spreading out the cost over time. However, it's crucial to carefully consider all aspects of the loan before committing to ensure manageable payments and avoid potential financial strain.

What’s the need to finance a used car?

One might wonder, what’s the need for used car financing. Compared to their brand-new counterparts, pre-loved cars are generally cheaper. However, financing a used car offers several advantages, thus making it a popular choice among prospective used car buyers in the Philippines.

Affordability: One of the most significant factors in support of used car financing is affordability. Used cars generally cost less than brand-new cars, making them more accessible to individuals with budget constraints or those seeking cost-effective transportation solutions. And with financing options by their side, the deal only becomes better for the buyer.

Flexibility: Financing options for used cars in the Philippines are diverse, thus allowing borrowers to choose from various lenders. The list includes banks, financial institutions, dealerships, and in-house financing providers. With so many options by their side, the buyers experience flexibility in terms of loan terms, interest rates, and down payment, which cater to a wide range of financial situations and preferences.

Quick purchase: Financing a used car enables buyers to become the owner of the vehicle quickly without having to save up for the full purchase price. With manageable monthly payments spread out over a predetermined period, individuals can enjoy the benefits of car ownership while maintaining liquidity for other expenses or investments.

Capped Depreciation: Depreciation is less pronounced with used cars compared to new ones, as the initial depreciation hit has already occurred. This aspect provides additional peace of mind to buyers, knowing that their vehicle's value won't plummet drastically in the short term.

Used car loan: Important terms & tips

Car loan terms and conditions encompass various aspects of the borrowing agreement between the lender and the borrower. Together they dictate the responsibilities, rights, and obligations of both parties throughout the loan time frame. In addition to that, we have also listed tips for the borrower that if followed will surely make the loan tenure smooth.

Let’s get to the important terms related to used car financing -

Used car loan: Necessary documents required

To obtain a car loan for pre-owned vehicles in the Philippines, borrowers need to provide various documents to the lender. Not only are these documents a legal necessity but they also act as a tool for the lending party to assess the borrower's eligibility and creditworthiness. Through these documents, the lender is able to verify the borrower's identity, income, employment status, and financial stability.

Below is a list of the necessary documentation needed for used car financing in the Philippines -

Personal Identification Documents

Borrowers must provide at least two valid government-issued IDs for identity verification purposes. It might be a -

• Passport
• Driver's License
• Unified Multi-Purpose ID (UMID)
• Social Security System (SSS) ID
• Government Service Insurance System (GSIS) ID
• Postal ID
• Voter ID
• Professional Regulation Commission (PRC) ID

Proof of Income

Lenders also require proof of the borrower's income so that they can assess their ability to repay the loan. The following documents may be submitted by the borrower as proof of income:

• Certificate of Employment (COE) issued by the employer, stating the borrower's position, salary, and length of employment
• The latest payslips covering the past three to six months
• Income Tax Return (ITR) or BIR Form 2316 (for employed individuals)
• Business permit or license (for self-employed individuals)
• Audited financial statements and business registration documents (for self-employed individuals or business owners)
• Bank statements showing regular income deposits (optional but may be requested for additional proof of income)

Bank & Financial Statements

Some lenders may request additional financial documents to assess the borrower's financial stability and creditworthiness. These documents include:

• Bank statements for the past three to six months
• Audited financial statements (for business owners)
• Credit card statements (if applicable)

Other Required Documents

Depending on the lender’s ask, the borrower might be required a few additional documents like -

• Validated chattel mortgage document
• Credit application form
• Proof of other assets/investments
• Additional identification documents
• Co-borrower or guarantor documents (if applicable)

Final thoughts

A wide range of financing options for purchasing a used car, catering to diverse financial situations and preferences are available in the Philippines. Whether through traditional banks, dealership financing, in-house financing, online lending platforms, peer-to-peer lending, or credit unions/cooperatives, prospective car buyers can find a financing solution that meets their needs. It's essential for buyers to carefully consider the terms, requirements, and risks associated with each option before making a decision. With proper research and planning, financing a used car in the Philippines can be a pretty simple process.