5 common car financing problems and how to solve them
Updated on September 23 2023
METRO MANILA, – Emotions play a huge part in purchasing a car.
It’s like seeing delicious food for the first time and you want to eat it right away! Unfortunately, this is one of the most common reasons that many buyers have car financing problems.
All rational thoughts become a blur and the only thing that you can focus on is driving the car home, regardless of the cost, which is frequently greater than the budget.
Here are five most common car financing issues, as well as solutions to these.
Buying without knowing your credit rating
One of the most common car financing problems is failing to check your credit score before making any purchase.
Despite not being a common practice in the Philippines, your credit score is the most important factor in determining whether or not your car loan application will be approved.
This also affects the interest rates and terms that lending institutions will offer. The lower the score, the easier the payments.
Solution: Before looking for the best rates, check your credit score
In the Philippines, the average credit score ranges from 300 to 850, with 850 being the highest.
If your credit score is low, you may want to work on improving it first in order to get better loan rates. Paying off your bank and credit card debts is part of this.
Keeping your credit history clean and financially spotless by making credit card payments on or before the due date also matters.
Buying a car that’s too expensive
More often than not, a lot of potential car buyers arrive at the dealership with so much enthusiasm.
This ultimately leads to poor car buying decisions, especially if they see a better car than the one that they have been eyeing for some time.
The truth is, spending more on a car isn’t necessarily a bad thing, as long as it doesn’t interfere with your other expenses. Furthermore, certain vehicles provide greater comfort and power than others.
Buying more than you can afford, on the other hand, can lead to financial problems.
Solution: Stick to a reasonable price range for the vehicle you want to buy
For starters, you can follow the usual 20-percent rule in purchasing an automobile.
This means that the monthly payments for the car should not exceed 20 percent of your monthly income.
Getting confused by discounts
While it is true that a lot of car agents offer great discounts to potential customers, some of them do not really explain the inclusions of that particular deal.
For example, some dealers provide zero interest rate for the auto loan, while others have cash rebates for early payers. Both are appealing, but the lack of explanation to the coverage of each one may lead to customer confusion.
Solution: Inquire about discounts offered by the dealership ahead of time
Ask for the inclusions and limitations so that you know what to expect in case you will purchase your desired automobile at their dealership.
If you are feeling overwhelmed by this situation, get help from a financial advisor. This way, you can learn how to get the most out of your discounts while avoiding future car financing issues.
Insufficient research on car loan rates
Most car buyers arrive at the dealership without first researching the vehicle they want to buy, as well as the current market interest rates.
As a result, they have no idea whether or not they are being offered a competitive rate.
Solution: Compare rates among several financing institutions
Make it a point to get rates not only from the dealerships, but also from banks and lending institutions. If you have accounts at a particular branch, you might be able to get a great deal on a car loan.
Take note, however, that the rates are subject to change without notice, depending on the global market and other potential factors affecting the automotive industry.
Buying without auto loan pre-approval
Another car financing problem that many buyers face is arriving at the dealership without a pre-approved auto loan.
This is because of a lack of knowledge of all of the financing options available to them or a mistaken belief that they will qualify for a low interest rate at the dealership. Unfortunately, this approach deprives the consumer of bargaining power when it comes to negotiating the lowest possible interest rate.
Solution: Before going to the dealership, make yourself an empowered buyer by getting a pre-approved auto loan
You can do so by inquiring about possible requirements on the bank’s social media page or by visiting their nearest branch.
After that, ensure that you can submit the required documents and wait for approval before inspecting your desired vehicle.
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Automart.PH Senior Content Creator VJ Bacungan contributed to this story.