Car Loan Refinancing in the Philippines

There are several ways in which one can buy a car in the Philippines, and one of those is through car financing. Since a car is not cheap, auto loans lets borrowers get what they want while giving them the option to pay the lender back in monthly installments over a period of time.

Indeed, this materialistic world gives us a lot of financial responsibilities. It’s a heavy responsibility and seems like a never-ending world of financial commitment that some of us have trouble keeping up with. In cases of car loaning, that is where car loan refinancing comes in.

## What Is Car Loan Refinancing?

Car loan refinancing works like auto loaning, although the difference is that this is an alternative option for those who are looking for better terms or for those who cannot afford to pay their current car loan anymore, either due to high interest or the shortness of the duration of their term. It is also another option for those who are on the brink of getting their car repossessed, or worse, with a replevin case under their name.

Since cars have been an integral aspect of our daily lives, some cannot afford to get their cars repossessed. On the other hand, having a replevin case under your name is not just a temporary thing. As this is a case filed by your lender because of the breach of your contract, it will affect your ability to get another loan in the future should your future financial institution check your credit status or credit history. You may not be able to get another car or house through loaning again.

For instance, say you have a car loan with your vehicle’s dealership for a year. However, it just so happens that you’re finding it difficult to pay your monthly installments because of how high it is. (Remember that if the duration of your loan term is short, even though the interest rates tend to be lower, your monthly installments will be higher since the monthly payment is due only 12 times.) In contrast to a long-term loan, the monthly payment will not be as high because the payment is spread over a longer period of time, although the interest rates are usually lower.

For whatever reason a person cannot pay their current car loan anymore, one can choose to refinance his/her car loan with a bank or financial institution. This is also called a car loan takeout. This is considered as a secured loan, meaning that you have your car as a collateral. Although take note that some financial institutions will require the current car loan to be already paid by at least 80% of the car’s total loan amount.

In a sense, it can also mean that the banks or financial institutions have paid the dealership for your car in full. In other words, you won’t have a debt with the dealership anymore, and in turn, you’ll be paying the banks or financial institutions instead with the terms that you have agreed upon. For example, you have a car loan for 1 year and you can’t pay it anymore due to the high monthly installments. In that case, the bank or financial institution can offer to refinance your loan for 2 years, or any term that you choose.

However, take note that not all may qualify for car refinancing. The bank or financial institution will only offer you refinancing based on your credit standing. This means that if you are always late on your payments, or you are proven to be a delinquent, you may not be approved for refinancing.

## Advantages of Car Loan Refinancing

There are many advantages if you opt for car loan refinancing in the Philippines. As stated above, some people opt for car loan refinancing because they are unable to pay their current auto loan anymore either due to high interest rates or high monthly fees. Things change after a period of time, and you might have had changes in your life, like a change in job, that changed your financial status.

In those cases, opting for a car loan takeout will help you to get a better deal, or to get another loan with either a lower interest rate or a longer term. In those cases usually the institution will not care as long as you have given back the full amount. So if your second lender has given you a loan to pay your first lender back in full, you need only to worry about paying back your second loan, but the difference is that it is now on a better term, with regard to interest rate or duration of the payment.

### Change in personal circumstances

Also, you should consider refinancing an existing car loan if your situation has changed since you took out your first car loan. You may have had bad credit when you applied for your auto loan. So if you currently have better credit, then you should try auto refinancing because your current credit status might qualify you for better terms than your current loan.

### Increased knowledge of car loans and refinancing

Of course, another thing to consider is your knowledge of your car loan. You may have had zero knowledge when you took out a car loan and didn’t shop or compare the rates of different dealerships, banks, or other financial institutions. You never know, but you may have been paying for more than your credit status deserves. In that case, it might be time to refinance to get a better rate. In other words, car refinancing boils down to getting a better term than your current car loan.