Low down, then what?

Published January 18, 2019, 12:00 AM

by manilabulletin_admin


George S. Chua
George S. Chua

Many Filipinos have dreamed of owning their own car or that vehicle they always wanted and the special promos of some auto dealerships of a low down or even no down is viewed by many of them as heaven sent. Is this really the case? After getting the car, then what? Sure you got the car home but then what? At best, it is 60 months of higher monthly amortization payments and at worst it is being unable to make even the first monthly amortization payment.

The short sightedness of many people prevents them from realizing what they are getting into when they acquire a vehicle with a low or no down payment. This means that they will have to pay a higher monthly amortization payment which includes a larger principal amount to amortize and of course the higher interest payments they need to pay. Many of these borrowers count their chicks before they hatch and we all know that is not the smartest thing to do. Perhaps they were counting on that promotion that was given to someone else, the salary increase that was not as much as expected, a business deal that never happens, revenues from operating the vehicle that does not materialize or an inheritance that did not come.

There are numerous consequences for the borrower who defaults on auto loans. A red mark on their credit which is a lifetime stigma and a permanent record of their poor credit record, that will affect all of their future applications for credit cards, housing loans, consumer loans including future auto loans and even job applications. After all, what employer wants to hire someone who has a bad credit history. Not to mention the legal action that the bank that lent them the auto loan will pursue against the borrower and his co-maker. It goes without saying that the vehicle gets repos sessed as well. It is potentially a short-lived bubble that ends up with no car and a seriously damaged credit record that is carried throughout the life of the unfortunate borrower.

You might think that this is a worst case scenario that is unlikely to happen to you. Think again, just look at the thousands of repossessed vehicles that the banks are desperately trying to sell. The number of blacklisted consumers grows with each day that they default on a loan, and once on that list, there is no turning back. You are marked for life.

It should be noted that both the auto dealership and the banks granting the auto loans on these low or no down payment schemes are partly to blame. In the desire of the auto dealership to boost their sales, they push sales at all costs! In the same way, some banks just go along to generate loan volumes or perhaps are under pressure from leading brands to approve these promos and turn a blind eye on the high-risk nature of these schemes.

At the end of the day, everyone loses. The hapless consumer who did not know any better end up losing his car and credibility, the auto dealership ends up with an unhappy customer, and the bank is left holding the bag and probably will end up losing money in disposing of the foreclosed vehicle. Perhaps the government should step in and protect the consumer from getting into trouble. In the meantime when you see a low or no down offer, think twice and say – no thank you!

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