Credit Transactions

CAR LOAN

Atty. Eleonor A. Balatbat

Members:

Evangelista, Susie Jean R.

Gopez, Donna Riza C.
Jamil, Mahyuddin S.
Leonor, Leonor T.
Main, Jessa O.

27 November 2018
The purpose of a car loan agreement is to bind two parties, the lender and the borrower,
into a mutual agreement that will result in the settlement of the loan in a specified period
of time. It also describes the responsibilities of each party that must be fulfilled for the
duration of the car loan.

The following are some terms may encounter in one such agreement:

Agreement. The provision in the agreement must be in writing and must comply with
the Republic Act No. 7394 or The Consumer Act of the Philippines. If the agreement is
in direct violation of the national law, it will be considered null and void.

Guarantor. A guarantor is a person who will substitute in your behalf in case you fail to
subsequently pay for your loan. The debtor must also prove the guarantor’s financial
capability.

Deposit and Margin of Finance. Banks or in-house financing in the Philippines usually
require a deposit fee between 10% and 20% of the vehicle’s total value. This means
that most banks can finance as much as 80% to 90% of the car’s total value.

Interest rate. The interest rate varies from vehicle to vehicle. It also differs from every
financial institution. Your interest could either be fixed or variable depending on the
agreed amount. In the Philippines, interest rates are usually fixed, this means the
interest rate from the day you signed up for the car will never change all throughout the
duration of the loan. Variable interest rate fluctuates depends on Prime Lending Rate
(PLR).

Insurance. Insurance is required by law for every newly purchased car. Banks or other
car loan financing institutions often provide car insurance for new cars in the first to third
years. They usually come free or for sale at a low price during the first three years of
coverage.

Penalty Fees. Financial institutions impose penalty fees on late payment. Worse, cars
are usually repossessed within three consecutive months of non-payment.

Remember to keep a copy of the agreement in case problems arise in the future. Read
through the agreement carefully to make sure that you are comfortable with the terms
and conditions set in it before signing. One rule of thumb is to pay on time and avoid
modifying the car during the length of the loan agreement so as not to void its warranty.
THE PROCESS

PROS AND CONS OF A CAR LOAN

Car loans can be very useful when needing to purchase a car, without the necessary
funds to pay for one up front. The following are some quick analyses of its pros and cons
objectively.

PROS

The benefit of a car loan is that you can get a car without the need to pay its full
amount, upfront. Although paying in cash means no interest charges, not many of us can
afford to do so. Car loans allow us to pay for a vehicle we would not otherwise have funds
for. So, in an ideal world, the bank lends you money to get a car, and in return you make
your repayments on time and everybody is happy.

CONS

While auto loan is a great way to obtain a car without having the need to pay it in full, the
amount of interest you pay can amount to a large sum, equal to a big proportion of the
car’s actual purchase price.

In car loan, you are practically renting the car and the ownership still remains to the bank
or the lending agency. The car is not technically yours until you have fully paid the car’s
amount.

You also run the risk of getting your car repossessed by the bank if you miss out on at
least 3 consecutive payments. In case this happens, you are required to pay the bank the
full outstanding fee plus any repossess fee.
The following is a matrix of selected stipulations in a CAR LOAN AGREEMENT or the
PROMISSORY NOTE WITH CHATTEL MORTGAGE, and its proposed revisions, in
favor of the debtor.
Original stipulation
… provided that a late payment charge of
5% per month shall be added on each
unpaid installment from its due date until
fully paid. Collection fee of 3% of monthly
installment shall also be charged in case
of default
I/We agree that if any of the installments
is not paid when it falls due, the balance
of this obligation then remaining unpaid
shall forthwith become due and payable
or shall be accelerated at the option of
the holder of this note without necessity
of demand.
I/We hereby waive my/our right to make
application for payment under Article
1252 of the Civil Code of the Philippines
especially in the case where I/have more
than one (1) obligation in favor of the
holder regardless of the source and
nature of the said obligation.
The upward or downward adjustment
shall be effective and binding on me/us
upon my/our receipt of a written notice
from the holder of this note.
Proposed revision
… provided that a late payment charge of
5% per month shall be added on each
unpaid installment from the date of
demand until fully paid. Collection fee of
3% of monthly installment shall also be
charged in case of default. Provided, that
before the debtor be considered in
default, an extra-judicial demand from the
creditor is necessary
In case of non-payment of this note or
any portion of it on demand, when due,
on account of this note, the entire
obligation shall become due and
demandable
I/We hereby waive my/our right to make
application for payment under Article
1252 of the Civil Code of the Philippines
especially in the case where I/have more
than one (1) obligation in favor of the
holder regardless of the source and
nature of the said obligation; provided the
creditor has sufficiently discussed to me
the relevant circumstances and likely
consequences of this waiver.
The upward or downward adjustment
shall be effective and binding on me/us
upon my/our receipt of a written notice
from the holder of this note and upon
receipt of the holder of this note of my
written consent.