• Starting from Basics – Car Loan Agreement


    The main reason to have a car loan agreement is to bind two parties, the bank and the debtor, legally. This joint contract is the driving force to ensure that the borrower settles his/ her loan in stipulated period. It also defines the accountabilities that should be fulfilled duly by both the party for the chosen loan tenure.

    While going through the given terms and conditions in the agreement copy given to you before signing, you are bound to come across numerous financial jargons outside your daily vocabulary as well as references to the legal side of it all. And it is natural to feel a tad hesitant to ask your insurance agent to explain each and everything. One cannot bank on the said agent’s patience level either.

    Read on to arm yourselves with the basics right here and clear those confusions right now.

    1. Agreement: The provision in the contract should be in writing and should be in total compliance with the Republic Act No. 7394 or The Consumer Act of the Philippines. If the agreement is seen to be in direct violation of the country’s law, it will be taken as unacceptable.
    2. Guarantor: A guarantor is an individual who will stand on your behalf in case you are not able to pay out the EMIs. You should also provide enough documentation to validate the guarantor’s financial competence.
    3. Deposit & Margin of Finance: Banks or domestic financiers in Philippines typically levy a deposit charge between 10 to 20 percent of the motor vehicle’s total price. This means that almost all banks can fund as much as 80 to 90 percent of the total cost.
    4. Interest Rate: The interest rate differs from car to car and bank to bank. Your interest could either be fixed or floating based on the arranged sum as well as the Prime Lending Rate (PLR). In the Philippines, interest rates are generally fixed, which means the interest rate from the day you signed up for the car will never change throughout the tenure.
    5. Car Insurance: Insurance is compulsory by law for all newly bought vehicles. Banks or other automobile financiers often offer auto insurance for new cars in the first year while a few offer the same for up to three years. Sometimes they are complimentary or are provided at reduced prices.
    6. Penalty Charges: Every financial institution levy penalty fees if you are fail to pay or pay after the due date. In worst case scenario, your car could be taken away if you fail to pay for three months continuously.


    The aforementioned elements of car loan agreement will be helpful when browsing or shopping for a suitable car loan option especially if you are doing it online where there is no dearth for choices.

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