Auto financing during the pandemic
Written by Eric Tipan
So you really like the Corolla Cross or any of the other crossovers that were virtually launched in the past few months but the catch is, you don’t have cash. Do you take out a loan?
The pandemic effect
There are a few things you should know about how the pandemic has affected financing. This COVID-19 pandemic has really done a number on everyone and has forced banks to be more careful, in a manner of speaking.
Say goodbye (for now) to ‘one-day processing’ and expect delays. That’s because of more intensive background checks and, of course, the limitations due to local health and safety protocols. Credit investigators can’t go out regularly like they did before and interviewing people has become a lot harder now.
The processes, the documents, and even the rates are all the same, but do expect some changes. Unlike before, some required documents aren’t waived anymore to speed up the processing of your loan.
If you’re a healthcare worker, go for it. In fact, there are promotions from various brands you can take advantage of right now. For everyone else, there may be some challenges.
With so many companies downsizing, some closing down, almost all industries seem volatile and that’s what banks are really looking at – what industry you are in. Your loan application with whatever bank will still be assessed under the same criteria, your financial capability to pay. Unfotunately, your capability is tied directly to the industry you’re in.
According to Ton Carabeo, an auto loan manager from a top bank, employees from top corporations will be ok but workers in pandemic-affected industries will find it hard to get their loans approved. It’s not discrimination, it’s a premise based on fact. One of the main revenue streams of banks is charging interest on money that they lend. If you can’t pay your loan (let alone the interest), that will be a problem for the bank.
Employment
In case you lost your job and you’re still in the middle of the loan period, it might be more prudent to return the vehicle. Call the bank and arrange to surrender the asset because yours is now a non-performing loan. Otherwise, the bank will initiate a replevin order, which means repo guys will be coming to recover the vehicle from you. Either way, your credit rating will take a big hit.
If you wish to keep the vehicle even in your situation, call the bank and talk about possible scenarios. Keep in mind that chances of payment extensions or holidays are slim. With new plans, you may incur penalties and higher interest the longer you keep the vehicle.
Grace period
For the people in the middle of a loan and are at odds with how the ‘Bayanihan Act’ affects their monthly payments, including interest, as per the Bangko Sentral ng Pilipinas, you’ll also be paying accrued interest.
During the “grace period” that lasted for 2.5 months in the ECQ (enhanced community quarantine), payments for the month of April and May 2020 were not condoned but simply moved to the back end of the loan. That means if your loan originally ends on January 2021, because of the ECQ grace period, it will now end on March 2021 and will include the accrued monthly interest totaling the same amount as the loan’s interest per month.
As an example, a monthly payment of Php 12,000 – Php 2,000 of which is the interest – becomes Php 14,000 inclusive of the accrued interest. Clients may opt to spread out the accrued interest over the period of the loan should it be too big for a one-time payment.
New business
If you’ve shifted careers and your new business needs a ‘service vehicle’, it may also be difficult to get a loan, but not because of the pandemic. One major requirement, if your main source of income is from an SME (small and medium-sized enterprise), is that the business has to be stable for at least two years. Bank statements will be checked along with the location of your business and even your rent. If you’re thinking of putting up another asset (like your house) as collateral, Ton says it doesn’t really work that way. The vehicle is the collateral so you can’t actually put something else up in its place.
There are many new vehicles and many tempting deals as auto manufacturers are also eager to push inventory. But during these unstable times, we all have to be smart. Like I tell my kid, get it only if it’s a need and not a want.