Is it really a “win-win” scheme for buyer and seller?
Assume balance or “pasalo” is often touted as a win-win situation: a seller–looking to avoid delinquency–gets to unload their car, while a buyer gets a very attractive price and financing all in one.
However, there’s a good reason why banks or dealers don’t tout their very own assume balance schemes: they can be extremely risky!
What is assume balance?
Basically, it’s passing off your auto loan, along with the car itself, to a buyer. The usual reason is that the seller can no longer afford their payments and wants to avoid defaulting and gaining bad credit status, hence “pasalo.”
The buyer pays a lump sum based on the condition, market value of the car, and the percent of the amortization that has already been paid–this amount is often much lower and more attractive than a traditional down payment for financing.
They then assume the rest of the monthly payments from the seller. These details are often listed out in the open, such as “Bank X, 16k monthly, 22 months left.”
Is assume balance legal?
Sellers often have a lot of requirements such as several valid ID’s, proof of income, proof of billing (like your Meralco bill), payment via post-dated cheques or PDC, and even NBI clearance. It can feel like signing up for an actual loan because they want to make sure a buyer can actually afford to take over the loan.
You would think that all these means it is legal and safe, but assume balance is technically only legal if the bank gives formal, written consent to it–this consent is given on a case-to-case basis and some banks totally refuse any sort of benta kotse agreement. By default, a loan is non-transferable according to most loan contracts.
With the risk of rejection and scrutiny afterwards, many pasalo agreements are done without bank knowledge altogether. “No bank approval needed” is actually a red flag rather than a sign of convenience.
Is assume balance safe?
If both buyer and seller are 100% honest and upstanding citizens, and the bank approves and properly transfers the car loan, then you can argue it is safe. Otherwise, buying via assume balance is dangerous compared to traditional means.
There are several nightmare scenarios that can happen–many stem from the fact that the car remains under the original owner’s name until it is fully paid off and eligible for transfer. If any of these situations are to occur during a deal, then legal issues and demands may not be far behind.
The seller stops paying, the bank seizes the car from the buyer
If the seller stops paying for their loan (even though they have received the PDC’s for it) then the bank will eventually repo the unit from the buyer even if they’ve already “bought” it. Some unscrupulous sellers may even try to offload units already on the verge of repossession.
The buyer stops paying, the bank chases the seller
If you are the seller and the buyer’s provided PDC start to bounce, then you will be stuck with a big problem with the bank. As far as they are concerned, the seller is still responsible as it is still their name on the loan. Meanwhile the buyer can simply disappear with the car and it would be your burden to find them.
No contract means no liability
There are stories of cars being used as rental units with the delinquent buyer knowing they would be repossessed in a few months anyway.
There is the possibility of either party being involved in a judicial case or illegal activities and being traced by the authorities to each other. If the car is involved in an accident and wrecked, should either party continue paying at all?
Further complicating things, there are even instances of buyers finding a third-party to “re-assume” the balance once they realized they couldn’t pay as well!
Since assume balance agreements are often done without a formal contract, sorting these scenarios out is very messy, time-consuming, and involve a lot of finger-pointing. The practice even made the evening news:
The safer alternative to pasalo
If you’re unsure about the certainty of your car loan, it is wiser and safer to trade in your car instead. How it works is to officially surrender the unit and negotiate for early termination of your loan with the bank–you will pay for this final amount in cash via the straight sale of your car.
It will be painful as you lose both the car and all the installment money you’ve put towards it, but it can still potentially preserve your credit rating and is a guaranteed legal means to do it. It’ll be a valuable lesson learned afterwards.
Here at Automart.Ph you can trade in your car or sell it via our Sell My Car service for you to be able to liquidate quickly and safely–it’s free to register too!
Automart.Ph is also properly registered with the SEC, DTI, and BIR, so you can be confident that all transactions with us are above board and fully legal.
When you’re ready to try again Automart.Ph provides the same deal for our thousands of high-quality used and repossessed cars: the lowest possible and fixed price. No markup, walang patong.
You may contact us at 0927-887-6400 for more information or to set up an appointment.