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Figuring out financing

Here’s your complete how-to guide

Published

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Buying a car can be a daunting task, particularly when it comes to finding the finances for it, the actual purchase, picking it up, and ownership costs. Below are tips on how to handle each aspect.

Financing

Buying a car can be a daunting task, financially. First, you have to make sure you’re prepared to take on this additional burden. For those opting for financing, conventional wisdom dictates that you should only allot 10 percent of your gross monthly income for auto payments. That way, you have flexibility to pay for daily essentials and, more importantly, the monthly bills.

Leave some allowance to either save money for the future, pay for vacations or to allow you the occasional shopping spree. Last, but definitely not the least, parking. It may seem like an inconsequential expense but aside from paying a hefty fine if you’re towed for being an ‘obstruction’ on the road, parking rates in CBDs almost rival two-star hotel rooms. Factor this in before even thinking of buying a car.

Banks have a totally different perspective. Experts on the matter like Ton Carabeo (Channel Manager, Bank of Commerce) say that to get approved for a bank loan, the monthly amortization of the vehicle you intend to buy should not exceed 30-40 percent of your salary, otherwise you’ll almost surely get disapproved.

My advice, allot 10 percent of your salary for the monthly amortization and choose a vehicle based on that budget only. This way, your loan gets approved and you don’t give up the lifestyle you’re accustomed to.

Study the pitch

You’re going to need more than the average math skills here to determine where to buy or who to take a loan from.

Let’s say you’re eyeing the Vios XE P735,000, have P147,600 ready for equity to take the burden off your monthly payments. To make your monthly amortizations light, have enough money for 20 percent down payment of the vehicle’s total cost. If you’re not financially liquid, or in other words, don’t have P147,000 to pay for the 20 percent down payment, your friendly neighborhood auto dealer is your best bet.

Bonnie Cu, Sales Manager of Hyundai Commonwealth says that the two most popular ways of acquiring a brand new vehicle is to buy direct from an auto dealer or go to a bank and get yourself a PO (purchase order).

They offer ‘low down payment’ packages, but remember that it comes with a standard add-on rate that is non-negotiable and it hovers at around 50 percent for five years. If you know nothing of interest rates, that number is high.

Chattel mortgage (price higher at the dealer by about P2,000 to 3,000), insurance and vehicle registration are subsidized by the dealer but while it may seem easy on the pocket, remember the add-on rate that you’ll have to bear for 60 months.

Getting a bank PO (purchase order) is the more cost-effective way in the long term – more about that below – but you’ll need to put down a significant amount for down payment, say 20 percent at least.

What makes this option more economical is the add-on rate for the duration of your auto loan. It’s different between banks and also depends on your relationship with the bank, but if you’ve been a loyal patron and know the manager personally, you can haggle the rate down to as low as 24 percent. That’s more than half of what the dealer offers. You can also negotiate the price of chattel mortgage and insurance, and maybe even spread out the payment over a certain period.

If your salary does not reflect the amount required for the loan, get yourself a co-maker. This could be a wife, parent or even a friend. A co-maker is someone who lends his credit by joining in the principal debtor’s obligation, so as to render himself directly and primarily responsible with the principal debtor. In other words, the co-maker will pay the car loan if the borrower doesn’t, but you don’t get to take home the vehicle unless you live with them.

Spouses are automatically co-makers of their significant other; banks require this arrangement. If legally separated, a waiver is necessary before the loan can be processed.

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Ownership costs

Let’s say the monthly amortization is easily covered by 10 percent of your salary, the ugly truth is, that’s the least of your worries.

Warranty of brand new vehicles will save you money but it only covers major components that break down due what automakers call ‘material fault’ says Jay Martin, Service Manager of Hyundai Commonwealth.

Oil changes and the consumable parts up for replacement like brake pads, air cleaners, oil filter, etc. will be out of pocket. Prepare to pay for oil, filters, and various consumables during periodic maintenance services.

The older your vehicle gets, the more care it needs. After the first two years, you’ll need a new battery (around P3,500), swap the front tires for a new pair (roughly P2,500 each) and new brake pads (P5,000 each for the Accent and you’ll need four in front). Three years and beyond, you’ll have to pay for vehicle registration, which is about P4,500 per annum, plus the pricey TLC (tender loving and care) it will require.

By Eric Tipan

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