EDITORS DESK

Acquiring a new vehicle is something practically everyone aspires to. Whether it’s a car or motorcycle, practically everyone’s lifegoals involve owning some form of personal mobility. These vehicles can be costly, so it’s not surprising that many are on the hunt for the best deals that can make their acquisition easier. Not surprisingly, some enterprising companies offer a truly tempting zero percent interest and very low monthly payments. They've come under the spotlight recently; both because of their attractive offers, and complaints from clients about defaults.

‘Lower than SRP’

These are reports that several  companies have begun offering financing assistance to those availing of car and motorcycle loans. Their main draw is requiring even lower monthly payments than any bank or dealership is able to offer. There are even brochures that list the possible monthly payments with certain vehicles. Add the payments up over the number of months and it ends up even lower than the suggested retail price (SRP). To avail of this loan, potential customers are asked to first avail of financing from a car or motorcycle dealer. Once approved, the customer brings the documents relating to the vehicle and loan to them. They then offer the customer smaller, easier payments with the promise to pay the higher payments to the bank for the customer. This “system” in essence assumes the burden of making the high payments while the customer, in turn, pays the trading company a smaller downpayment and lower monthly payments than the dealership initially offered. The problem with this “system” is that it adds an unknown third party to the financing transaction, typically between just the bank and the buyer. The vehicle trader’s company name is kept off the books and the customer is asked to simply “trust” the company to make the higher payment for them. They claim that the payments are even made far ahead of the deadline, keeping the customer in good standing. However, many customers have recently complained that payments haven’t been made on time. The banks are now knocking on these customers’ doors, threatening to repossess the vehicles. Meanwhile, the companies have closed their offices, if not, have conveniently adopted a work-from-home policy for their employees. The catch to this system now becomes evident: there’s no real contract or consequence that obligates these companies to actually make the payments. After all, the financing plan is still in the customer’s name. The bank or dealership has no idea this third party is involved. The customer has to make a second downpayment with the company to avail of the “system.” In addition, the company has possibly collected several monthly payments by this point. The bright red flag in this case is the fact that the trading company is not on the line for anything. Neither the vehicle nor the loan is in their name. In fact, customers that avail of the “system” are reminded not to inform the dealer or bank of the company’s involvement in the financing. There is no collateral given to the customer to ensure the company makes the payments. In the event of a default, the company gets away scot-free while the customer is left to face the consequences.

Assume balance

Another problematic trend is the sale of used cars with the term “assume balance.” In this case, the buyer is asked to pay an upfront fee for the used car as well as take on the burden of continuing the monthly payments. These are usually offered by customers that have trouble meeting the monthly payments and are hoping to offload the vehicle without affecting their credit. Like we mentioned before, a financing plan is strictly between a bank and a customer. Before you enter into this sale, it’s prudent to make sure that the seller has the bank’s permission to sell the vehicle and pass the payment plan over to you. This necessitates that the loan contract is indeed transferable and does not have a provision that prohibits the assume balance sale. Typically, banks don’t allow assume balance sales as the second buyer may not be able to meet the same terms and requirements as the first buyer. If in the rare case that it is allowed, you will likely have to be screened by the bank first and must submit certain paperwork. If the seller says the bank is not aware of the sale, be wary of the deal. Like with the auto trader company, there’s little guarantee that the seller will continue the payments or that the bank won’t come after you or your car.

Too good to be true

A new vehicle can mean freedom and mobility, but there are many possibilities for that dream to quickly turn into a nightmare if you’re not careful. The old adage still holds true: if it’s too good to be true, it probably is. Be vigilant when buying a vehicle. *(Iñigo S. Roces is the Motoring Editor of Manila Bulletin)*