Most Common Questions (and Answers) When Getting a "Used Car" Loan

Did you know that you can get a loan even when buying a used car? And while it may not be as "flexible" compared to financing new vehicles, they can still get the job done if you, your budget, and the car you want are a perfect match.

There are many routes to having your used car financed--you can do it either through bank loans or non-bank loans (third-party financing companies). Alden Ray Ejorango, CARMUDI PHILIPPINES' Head of Loans Department, has given us some of the most common questions--and answers--when getting a car loan. Here are the top ones on his list:

Can you get a used car loan even if you have an existing, settled / paid loan somewhere else, like a home or education loan?

Yes you can get a loan for both banks and non-banks. Basically, they look at your financial capability to pay not just the down-payment, but the monthly payment of the vehicle that you're purchasing for the entire loan term PLUS your capacity to pay your other existing loans.

How much salary do you need to get a used car loan?

Generally, banks will approve your application if the monthly amortization of the car you're buying is three times your total income. Note that this includes the monthly income of the first borrower and his or her spouse or second borrower (or co-maker).

For instance, a car with a monthly amortization of PHP15,000 requires you to have a salary of not less than PHP45,000. A PHP25,000 monthly car payment means your salary should be around PHP75,000 or more; if it's PHP30,000, then it should be PHP90,000 and above.

On the other hand, non-banks, or third-party financing companies are not so stringent compared to banks. In fact, some will even accept  those that are lower than the “required” income or salary. The downside, however, is that they use higher monthly interest rates compared to  banks.

Can you get a  used car loan even if you have unpaid credit card bills or unsettled loans?

It’s possible for you to get a loan in banks, although you’re required to have good credit standing when you apply for a loan.

What's more, banks not only look at unsettled loans, but also for a current Replevin Case. It's a big red flag for them, and it's highly unlikely that they will approve an application if they see this. Still, they can approve a car loan if there’s a valid reason for this--like perhaps, the car under Replevin was car-napped a year ago so the monthly payments were stopped.

On the other hand, some non-banks or third-party finance companies approve car loans even if there’s a past due loan somewhere.

How much is the interest rate when getting a used car loan?

Interest rate for banks that offer one to four year loan terms are around .93 percent to 2 percent. There are even some that offer up to five years with an interest of 0.46 percent per month.  

Meanwhile, interest rate for non-banks that offer one-year to three year loan terms are at 1.25 percent to 1.30 percent.

What are the required fees when getting a used car loan?

Banks and non-banks require a 30 percent down-payment, a processing fee of of up to 7 percent, plus insurance fees.

To give you an idea of how this works, here's a breakdown of a car loan and the monthly amortization required depending on the term. The vehicle's unit price is PHP370,000, and the 30-percent down-payment is PHP111,000. The amount to be financed (or loaned) is PHP259,000.

What are the requirements needed when getting a used car loan?

General requirements include two valid government issued IDs and two copies of the latest proof of billing, such as an electric bill.

Those who are employed should also submit a copy of their certificate of employment (COE), pay slips, and company ID.

Those who are self-employed or who own a business should also submit a copy of their business permit and 3 months latest bank statement.

OFWs or Seafarers are also required to submit their contract of employment and travel documents.

How long is the typical duration before a used car loan gets approved?

Approval can take between 24 hours to 2 weeks.

How do you know if your chances of getting approved is high?

Anyone's chances is good for as long as your salary is enough to pay not just the down-payment, but also the monthly payments. Generally, banks are stricter, and will require you to have good credit standing.

Financing companies, however, are more lenient, and can approve your loan even if you don't meet all their requirements. Their terms and conditions will vary, however, so you need to discuss this with them personally.

There are some occupations that most banks and financing companies are stricter to when it comes to loan approvals.  For instance, those who work at call centers have better chances of getting approved if their positions are on the supervisory level--like a team lead--and have been working there for five years or more.

How old should you be to get a used car loan?

Borrowers must be between the ages of 21 to 65 years old.

When is the longest term you can take when getting a used car loan?

The longest term you can take for banks is five years, provided that the vehicles you're buying are 2012 to the current models. If not, then the longest term is three years.

Non-banks, on the other hand, allow three years.