Financing options: Which one is better?
To pay for your vehicle, car loans are available from your preferred bank or dealership.
Financing options: Which one is better?
To pay for your vehicle, car loans are available from your preferred bank or dealership.
Bank financing, as the name suggests, is a car loan offered by a local bank. Although interest rate may vary from one bank to another, car loan approval still depends on the lendee’s current financial status or credit standing which includes the loan history, unpaid bills, and unsettled payments to other banks or commodities.
In-house financing, on the other hand, is an option that the dealership gives to the buyer. Unlike bank car loans, they offer quicker approval, which sometimes can go in as fast as 2 hours. Another advantage of in-house financing is the promos that come with it. This include free chattel mortgage fees, 1year comprehensive insurance, and 3year LTO registration. However, inhouse financing sometimes offer higher interest rates which means that the borrower will be paying more over the car's SRP as compared to that of bank financing.
Computation
The downpayment is usually from 20% to 50% of the car’s actual price. The remaining percentage plus the interest rate will be paid in monthly dividends. This is called the monthly payment or the monthly amortization which has a loan period that can go from 12 months to 60 months. The amount of downpayment and the length of the loan period will depend on the approval of the lender.
Here's a sample bank financing computation using the Car Loan Calculator:
SRP: P1,000,000
Downpayment (20%): P200,000
Amount Financed (AF): SRP – Downpayment = P1,000,000 – P200,000 = P800,000
Monthly Amortization (60 months): P16,970 per month
AF + AF(Interest Rate) = P800,000 + P800,000(27.28%) = P16,970 per month
Loan Term 60 months
Which is better?
The better financing option depends on the borrower’s financial capability. If he has a strong relationship with a bank, then bank financing would be better. He’ll get a better deal with them as the interest rate is lower and the approval will be faster.
If the borrower is in a rush for the approval and hates waiting for a third party to approve the loan, then he should choose in-house financing. All-in packages and other freebies might make up for the higher interest rates that it offers.