Are you among many Filipinos who dream of having their own car in the near future? Or are you perhaps looking to upgrade your existing vehicle into something more modern or more spacious? One of the best ways to finance your purchase is through the’ banking institutions offer.
Applying for a car loan from a bank might seem difficult, but it’s actually pretty straightforward. As long as you meet the eligibility requirements and submit all the needed documents, you will have a pretty good chance of getting approved. Still, no one can guarantee anything. To give you an idea of how banks decide whether or not to approve your car loan, here are some factors to think about:
Your Credit History
If you have a large amount of unsettled debt, your car loan application may get declined. Why? Banks also have to think about their financial safety. Would you personally lend money to someone whom you know already has a lot of debt? Your answer would probably be a big NO, right? Banks also share the same philosophy. When banks lend you money, they want to be sure that you can pay. After all, lending money is a big risk.
Of course, having existing debt doesn’t automatically disqualify you. As long as you have proof that you are capable of paying, then you have a good chance to get approved for a car loan. Still, the best scenario is to have no pending loans before you apply.
The Price of the Car and Your Capacity to Pay
In relation to your credit history, you also have to prove to the bank that you can pay for the car you want. Be reasonable and be honest. If you know that you can only afford a mid-range SUV, don’t purchase a luxury car. In addition, don’t apply for the maximum amount outright. Let the bank determine how much you can borrow. You might be pleasantly surprised by the car loan amount you can avail.
Your Down Payment
Some people are tempted to purchase a car due to low down payment requirements from car dealers. In fact, low-end car models sometimes have all-in down payments of only Php10,000 or even lower. However, when you apply for a car loan from a bank, one of the best ways to get approved is to pay a bigger down payment. The sweet spot is about 20 percent of the car’s total price; if you can shell out more then it will greatly boost your chances. What’s more, paying a bigger down payment means that you’ll have lower monthly amortizations and/or a shorter loan term. This will be more convenient for you in the long run.
As earlier mentioned, banks want some assurance that you can pay your loans. One assurance is having a steady job. Ideally, you should at least be working with your current employer for two years. This shows the bank that you have a stable source of income. A savings or credit account with the same bank can also increase your chances.
Banks usually have quite a long list of documentary requirements for car loans. The stringent screening process ensures the security of both the bank and its clients. Make sure to review the checklist of requirements and complete them before you even submit your application. This shows the bank that you’re prepared and willing to take on the responsibility.
For employed individuals, the usual requirements include a duly signed application form, a COE or certificate of employment, your latest income tax return or ITR (BIR form 2316), and proof of billing. For identification, you need at least two valid or government-issued IDs. There may be additional requirements if you’re self-employed or an OFW. For example, businesses may be required to submit their DTI registrations and OFWs need to submit proof of remittance.
You might be a little hesitant about availing car loans from banks due to their strict requirements. However, it’s also for your financial safety and security. Indeed, you’ll find that banks often have better offers than your car dealer or other lending institutions.
Keep these things in mind to help boost your chances in getting a car loan approved. Good luck on getting your dream car!