Clearing Up 6 Things People Usually Misunderstand About Auto Loans

For a lot of Filipinos, an auto loan is the most practical way to own their dream car without paying the full price upfront. With an auto loan, the borrower agrees to repay the lender in monthly installments, typically over a set period. Unlike a personal loan, which can be used for a variety of expenses, an auto loan is specifically intended for buying vehicles. It also usually has shorter repayment terms and lower interest rates compared to a home loan, but they also come with different qualification criteria and structures.

Despite their practicality and accessibility, auto loans are often surrounded by misconceptions. Many of these myths stem from common assumptions about how auto loans work or from experiences with other types of financing. These misunderstandings can lead borrowers to make decisions based on incomplete or incorrect information, resulting in less-than stellar experiences that then perpetuate the process.

To help you better navigate the process, it’s best to separate the myth from the truth. So, in this article, we will address some of the most common misconceptions about auto loans and clarify the truths behind them. 

1. Dealerships Offer the Best Financing Options

Many people believe that car dealerships always provide the best financing deals. While it is true that dealership financing is convenient because it allows you to secure your loan and car in one place, it’s not always the cheapest option. For instance, dealerships sometimes mark up interest rates to earn a commission, which makes their offers less competitive than those from banks.

Having said that, this should be your cue to do your research and compare offers from banks. You may find better interest rates, lower fees, or more favorable repayment terms than the in-house financing dealerships are offering. 

2. Auto Loans Only Apply to Brand-New Cars

Another common misconception about auto loans is that they’re only available for brand-new vehicles. This can discourage many people who are interested in purchasing pre-owned cars from seeking financing options.

The truth is that most lenders in the Philippines also offer auto loans for used cars, and EastWest Bank is one of them. While interest rates for used car loans may be slightly higher due to the depreciation of the vehicle, they can still be a practical option for budget-conscious buyers. 

3. The Requirements Are the Same for New and Used Car Loans

It’s easy to assume that the requirements for new and used car loans are identical—a car is a car, whether it’s brand new or otherwise—but this is not always the case. While both loan types require basic documents like valid IDs and proof of income, used car loans often come with additional requirements. For instance, lenders may request documents that confirm the car’s condition. For EastWest Bank Auto Loan, this includes a motor vehicle inspection and appraisal and car history verification. These additional steps ensure that the used car meets quality standards and isn’t tied to any legal issues. 

So, if you plan to apply for an auto loan for a used car, it’s best to understand these differences to help you prepare the necessary paperwork and streamline your application process.

4. You Need to Be Employed to Be Eligible for an Auto Loan

Many Filipinos think that only those with stable, full-time employment are eligible for auto loans. This belief may discourage freelancers and small business owners. However, this is far from the truth. 

Nowadays, lenders consider a variety of income sources. If you’re self-employed or a freelancer, you can still apply as long as you provide proof of your financial capacity. Documents like income tax returns, business permits, and DTI or SEC registration certificates can all serve as alternatives to a traditional certificate of employment. This allows more Filipinos to access auto loans and purchase their dream vehicle.

5. Payment Terms Are Always Fixed

There are also many who that auto loans come with rigid payment terms, leaving no room for flexibility. This can discourage potential borrowers who fear being locked into a repayment plan that doesn’t suit their financial situation (which can change at any time). 

However, the truth is auto loan payment terms are often customizable. In many cases, borrowers can choose a repayment period that aligns with their budget and financial goals. For an EastWest Bank Auto Loan, in particular, borrowers can choose from flexible payment terms of 12 months to 60 months, depending on the vehicle’s year model. A longer or a shorter payment tenure each has its pros and cons; that said, banks are open to discussing payment reassessment if, for instance, you’re able to pay off your auto loan sooner rather than later. 

6. You Must Open a Savings or Checking Account with the Bank

It’s widely believed that you need to open a new savings or checking account with the bank where you take out your loan. While it’s more convenient for borrowers to open an account to facilitate auto-debit payments, this is not always a requirement. Many lenders accept payments through existing accounts, post-dated checks, or even e-wallets. These options provide borrowers with more flexibility and convenience. 

Auto loans are an excellent tool for financing your dream car, but they come with complexities that are often misunderstood. Make sure to find out the truth about certain myths so you can approach the process with greater confidence and clarity. If you’re considering an auto loan, EastWest bank offers one with low down payments and affordable financing terms. Check out our auto loan page for answers to frequently asked questions and other details.