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Starting the year with a car loan
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As we were preparing to welcome 2021, my husband was sharing how two of his work colleagues were trying to beat the deadline and process documents for car loans before the last business day of 2020.To get more auto finance news, you can visit shine news official website.
With all the uncertainties of 2020, which many expect to remain for 2021, it didn’t seem to be a wise move to start the new year by taking on new or more debt.For one of them, it meant getting his hands on his first car. To drive home an entry level compact car, he only had to pay P48,500 as down payment. For a five year term, he will pay P16,300 for the next 60 months. The listed price of the car was P841,000, and his total payments – including his down payment and monthly amortization – come to P1,026,500. If we deduct all his payments to the cost of the car, his interest fees are P185,500 for five years, or P37,100 annually. To someone like me who is debt-averse, it’s not a bad deal. And while he is largely working from home, the sad state of our mass transportation and the critical need for social distancing makes me very supportive of his borrowing decision.
Now let’s look at his other colleague. He is taking out a loan to buy a second car, and he was prompted to do so after receiving his year-end bonus. He picked a China-manufactured SUV (sport utility vehicle) which surprisingly at P868,888 was about the same cost as the entry level compact car from a more popular auto manufacturer. With his bonus pay, he could afford to pay a much higher down payment, resulting to a much lower monthly amortization, and a friendlier interest rate. Buying a second car when the economy looks this bad is not something I would do, but he is looking to trade up and will soon sell his other and older car to avoid higher maintenance costs. Sounds like a good plan don’t you think?
If all these talk and numbers are making you want to get a car of your own, keep in mind these 5 things before you sign on the dotted line of a loan contract.Financial experts will tell you that a car is not considered an asset despite its price tag. Why? Because you will pay increasingly more for something that will be worth increasingly less. When you buy a brand new car, the minute you drive it out of the showroom, it already lost between 10% to 20% of its resale value.
So if you are looking to own your first car, or to have a second car to meet your family’s growing transportation needs, how about shopping around for a good value second-hand car? My husband’s first car was a second-hand car and he got such a good deal that when it was time to trade up, he still went for a second-hand car. Of course as with anything you buy, do your homework and bring along a trusted car mechanic to thoroughly inspect the merchandise.