5 Things Every First-Time Car Buyer Should Know Before Applying for a Loan
Buying your first car is a milestone—whether it’s for convenience, family use, or just simply the joys of driving. But for many Filipinos, purchasing a car outright with cash is not always possible. This is where car loans come in with practical solutions!
To help you make smart decisions and avoid unnecessary stress, here is a guide that will walk you through five key things every first-time buyer should know before applying for a loan.
1. Know the Full Cost of Car Ownership
A key factor to keep in mind is how loans alter the way you pay for your car. There is a set schedule to follow and certain fees to be aware of. However, that is just the tip of the iceberg—owning a car also comes with continuous expenses you must plan for. Let’s look at both sides of this financial commitment.
How Car Loans Usually Work:
A car loan lets you spread the cost of a vehicle over several months or years instead of paying the full amount in one go. Here are the basics:
- Down Payment: This is your initial cash out, typically 20% to 30% of the car’s price. The higher the down payment, the lower the monthly installments will be.
- Loan Term: The repayment period varies per lender, but it can last for as little as a few months to several years. Shorter terms mean higher monthly payments but less overall interest, while longer terms lower monthly dues but increase the total cost of borrowing.
- Interest Rates: Interest rates may differ depending on the lender, loan type, and your credit profile. A better credit history opens doors for lower rates.
- Additional Fees: Some loans may include processing fees or penalties for late payments or early settlement.
Other Costs Beyond the Loan:
- Fuel Expenses: Fuel can eat up a chunk of your monthly budget, so choosing a fuel-efficient model can help ease this.
- Insurance Premiums: Comprehensive insurance is required by lenders and is essential for your own protection.
- Registration Fees and Taxes: Annual LTO renewal and other paperwork also require you to shell out some money.
- Regular Maintenance: Oil changes, brake pads, and tire replacements are costly when added up over time.
- Unexpected Repairs: Used cars may come with hidden issues that are not observable up front.
Tip: A good rule of thumb is to add at least 20% more to your estimated monthly budget to cover these additional costs.
2. Review Your Credit Score and Eligibility
Your credit standing is one of, if not the most, important factor that lenders look at when reviewing your application. While some buyers may not have an extensive credit history, lenders still want to check proof of financial responsibility.
What lenders check:
- Proof of income: payslips, certificate of employment, business permits
- Debt-to-income ratio: the percentage of your income going to debts
- Credit history: timely payments on loans, credit cards, and/or installment purchases
A good financial record significantly increases your chances of approval. Who knows? This may even qualify you for lower interest rates!
Tip: If you have outstanding debts, try to settle them before applying for a loan. This shows lenders that you are capable of handling financial obligations responsibly.
3. Compare New vs Used Car Loan Options
When applying for a car loan, one of the biggest questions first-time buyers face is whether to choose a brand new car or a used one. Each has its share of advantages and disadvantages, but for beginners, a used car loan may be the smarter option.
New Car Loan
- Pros: Comes with a warranty, less maintenance worries
- Cons: Higher purchase price and faster depreciation
Used Car Loan
- Pros: Lower upfront cost, affordable monthly amortization
- Cons: May require more maintenance depending on mileage and age
Tip: For first-time buyers, a reliable used car financed through trusted partners like OneLot can give you the quality without breaking the bank.
4. Prepare the Right Documents
To avoid delays or even rejection of your loan application, it is important to prepare all necessary documents ahead of time.
Listed below are commonly required documents:
- Valid government-issued ID (driver’s license, passport, etc.)
- Proof of income (payslips, COE, ITR)
- Proof of billing (utility bills)
- Bank statements (if applicable)
For self-employed individuals, lenders may also ask for DTI registration or a business permit.
Tip: Keep scanned copies of your documents, especially when applying for financing online. It makes the process faster and easier!
5. Select the Right Loan Provider
Not all lenders are equal. Some offer lower interest rates with hidden fees, while others have stricter requirements. Choosing the right financing partner will make or break your car ownership experience, so choosing the right one is a must!
What to look for in a loan provider:
- Transparent terms and conditions
- Flexible repayment options
- Swift approval process
- Good customer service
Tip: Always read the fine print when signing a loan agreement. Don’t shy away from asking if something is unclear!
Purchasing your first car is a huge milestone, but it is a financial commitment that requires careful planning and decision-making. By understanding the total cost of ownership, checking your credit standing, comparing options, preparing documents, and choosing a loan provider, you’ll be well on your way to a smooth, stress-free car ownership.
