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How Long do I Need to Pay an Auto Loan For?
Saving every last Peso for years to buy a new or second hand car can easily take the excitement and fun out of jumping behind the steering the wheel. The months and years of commuting, flagging down an FX and resorting to paying a high priced taxi fare when it starts to rain quickly makes any Filipino start to think about availing of an auto loan.
But first you need to ask: “How long will I be paying this loan for?”
Good question my fellow Filipino! The magic answer is of course: “It all depends…” sorry, but it does. When applying for an auto loan from any bank, major lender or car manufacturer (Toyota, Honda, etc,) you will be asked two very important questions.
How much would you like to borrow? (How much can you afford?). And:
Over how many months, would you like to repay the loan for?
Choosing your loan amount is relatively easy, based on your income and existing expenses the lending company you are dealing with will be the one to advise you how much you can borrow. After all, they do not want to approve you for a high loan amount that you will be unable to repay. Deciding on the length of time that you will repay the loan for is a more important question. Here are simple facts with any auto loan, cash loan, personal loan, home loan or any loan…
The longer the duration of the loan, the smaller the repayment will be each month. But you will end up paying more at the end of your loan’s life span.
The shorter your loan, the higher the monthly repayments will be as you need to repay the full amount back quicker.
Simple right? Imagine your Dad loans you P10,000. You can either pay your dad back from your next salary which means it will be a P10,000 cut out of your salary the next time you are paid. Or, you tell your Dad: “Daddy, I will pay you P1,000 for 10 months po”. This second arrangement is easier for you to afford, as the length of time to repay the loan is longer.
Different banks and auto loan lenders have different durations that you can pay an auto loan for. Below are just a few of the lenders and their options (in no particular order):
BDO: 12 – 72 Months
BPI: 12 – 60 Months
PSBANK: 12 – 60 Months
UNIONBANK: 12 – 60 Months
SECURITY BANK: 12 – 60 Months
Allied Bank: 12 – 60 Months
Robinson Bank: 12 – 60 Months
Please note. These figures were researched at the time of writing this article (January 9, 2014). We suggest you check these again before making any decision.
When availing of an auto loan, the length of the loan is your decision. You need to choose a length of time that will reduce your monthly repayments to a level that you will always be comfortable to pay. Don’t forget to consider other expenses you already have or may have in future. Also consider; upcoming holidays, bills, out of town trips you have planned, birthday presents and other celebrations, as well unexpected expenses like medical emergencies. Consider a ‘worst case scenario’ month and ask yourself if you will still be able to make the repayment. Choosing the maximum loan term is also not favorable as this will be most expensive option. It is cheaper to pay 9% of any loan amount for a shorter time.