Why You Should Say No to Your First Car Loan Offer
If you’re one of the people who bought a car in 2015, you’re probably among the people who helped break the automobile industry's records. A total of 62,882 vehicles were sold within the first quarter of 2015, signaling a higher purchasing power and growth within the middle class.
One factor that affected car sales is that a number of car loan packages are available to consumers, attracting them with massive giveaways and freebies, along with access to some of the latest cars on the market.
You might think that it’s a good idea to get a car the second you’ve saved enough. It’s not.
Slamming a downpayment on the first financing offer you get at a dealer isn’t the best idea. In fact, you should probably say no to it.
Why say no?
Your dealer doesn’t actually finance these loans; they’re the middleman between you and the bank or financing company. Also, your dealer doesn’t specialize in car loans, so how are you so sure that you’re getting the best deal on your car loan?
If you aren’t convinced to not sign that first car loan offer, here are a few more reasons why you should think about it.
It’s not in your favor
The car loan that you're offered on your first round is a high-interest loan with annual interest rates of up to 9% to 10%. Because dealers partner with banks and financing firms, they get to make a profit out of the sale by putting on additional interest.
That won’t do because loans directly from banks or financing institutions charge as low as 5% on a car loan, and that could be decreased if you’ve got more money to put into the downpayment. The last thing you want is paying double the price for your car.
Know more about the advantages and disadvantages of car financing here.
It’s completely in their favor
Because profits are on the line, some dealers offer only their highest car loan offer, instead of the ones with lowest interest rates to match your financial capacity.
Some lenders might offer incentives to dealers that meet a sales quota, prompting them to push a lender to potential clients because the earning they'll get. Dealers are under no obligation to give you the best deal.
Unnecessary add-ons
Sometimes, dealers will put on things to your car to add value and price. Some dealers do offer insurance with the car. Because of commission schemes, you’ll end up paying at higher price points than you would’ve if the car loan and car insurance packages remained separate.
Avoid this by looking closely at the car pricing breakdown like the fine print on a contract. You’re better off being aware of everything than paying for something you didn’t want.
A more expensive car
When you head into a dealership, you’ve got a budget for a car. With a budget of Php 500,000, a 20% downpayment that is usually required by car dealerships caps at Php 100,000. This will give you the option to get a car loan of Php400,000 that has a yearly interest rate of 5% on a total loan of Php 420,000. With a payment term of 48 months, you’re looking at a monthly payment of Php 8,750.
A dealer may try to sell you at a lower downpayment and an extended payment term. Don’t take it. Your monthly payment might end up the same, but you’ll be paying much more for much longer and you don’t want to be burdened that long.
Final thoughts
Getting your first car is a life event, so you’re likely to be excited and beyond ready to jump at the first deal to get it.
Instead of grabbing the first car loan that a dealer might throw at you, it’s ideal to shop around. Check banks for pricing and loan amounts, or go to online comparison platforms so you can get more than just the price of a loan, you can also check the amount that’s specific to the car that you want.
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