Before you visit the dealer
Four things decide what a car loan really costs. Here is each one.
Banks finance 70 to 80 percent of the car's price. The rest is your down payment, paid upfront to the dealer and never part of the loan.
20 to 30%How most banks quote car loans: interest on the full financed amount for the whole term, divided evenly across your payments. The effective rate is higher than the quoted number.
on full amountUsually 12 to 60 months. A longer term means a smaller monthly payment but more total interest.
1 to 5 yearsA one-time fee to register the bank's hold on the car until the loan is fully paid. Budget a few percent of the loan amount on top.
one-time feeHow add-on interest adds up
worth checking twiceThe add-on method most Philippine banks use for car loans computes interest on the full financed amount for the whole term, then adds it to the principal and spreads the total evenly across every month. Because the rate stays tied to the original amount even as your balance falls, a quoted 5 percent add-on rate works out to roughly double that as an effective rate. Two quotes only compare fairly when they use the same rate type.
Say a car is priced at ₱1,000,000 and the bank asks for 30 percent down. You pay ₱300,000 upfront and finance ₱700,000. At a 6 percent add-on rate over 5 years, the interest is ₱700,000 times 6 percent times 5, or ₱210,000. Add that to the principal and divide by 60 months, and the monthly amortization comes to about ₱15,167. A larger down payment shrinks both the monthly figure and the total interest.
Terms usually run 12 to 60 months, with new cars getting the longest and used cars often capped shorter. A longer term lowers the monthly payment but raises total interest, so the comfortable choice is not always the cheapest one. Remember the costs outside the loan too: a one-time chattel mortgage fee, and comprehensive insurance for every year of the term. To compare a rest-rate quote or plan other borrowing, the general loan calculator and the Pag-IBIG loan calculator help.
Questions people ask
answered in plain wordsWith the add-on method banks use for auto loans: interest is computed on the full financed amount for the whole term (financed amount times the annual rate times the number of years), added to the principal, and divided evenly across the months. If your quote uses an effective or monthly rest rate, switch to the amortized option instead.
The rate most Philippine banks advertise for car loans. A 5 percent add-on rate does not mean you pay 5 percent effective interest; because the rate applies to the full financed amount even as your balance shrinks, the effective rate is roughly double the add-on rate. Two quotes are only comparable if they use the same rate type.
Most banks require 20 to 30 percent of the car's price, so they finance the remaining 70 to 80 percent. Low or zero down payment promos exist, usually from dealer financing, but they carry higher rates or longer terms. A bigger down payment always means less interest overall.
Usually 12 to 60 months. Brand-new cars get the longest terms; used cars are typically capped at 36 to 48 months with slightly higher rates. A longer term lowers the monthly payment but increases the total interest.
No. Banks charge a one-time chattel mortgage fee to register their hold on the car until the loan is paid, and require comprehensive insurance every year of the loan. Ask the bank for the total cash-out on release day, which also includes the first year's insurance.
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