Here's a simple but interesting equation involving cars, loans and consumers: a growing appetite for wheels, plus favorable lending rates, equals fuel for optimism that car loans will grow by at least a third this year.
“We see a continued increase in auto loans in the coming months,” Jacqueline Fernandez, executive vice president and head of Consumer Lending Sector at listed East West Banking Corporation (EastWest), said in an e-mail message to GMA News Online.
The Gotianun-led bank projects auto loans growing at a yearly rate of 33 percent, particularly this year, in line with a double-digit growth in sales car dealers and manufacturers see expect for the period.
Lee de Claro, first vice president and Consumer Group head of United Coconut Planters Bank (UCPB), noted in a separate e-mail they expect to maintain “results of over 30 percent” growth in auto loans the rest of the year.
A growing economy fuels the changing lifestyle and consumption habits of the Filipino consumer, boosting car sales by a fifth in January to August.
Affordable rates
Czarina Pilapil, 34, a first-time car buyer, is proof of this phenomenon.
“It's really a necessity for me now, given the time and length of my commute,” she said in a phone interview.
An expanding car market can be traced to affordable lending rates, thanks to record low policy rates set kept by the central bank.
Latest Bangko Sentral Data showed the average lending rate was pegged at 5.62 percent as of Thursday. Lending rates range from a low of 1.25 percent to a high of 10 percent.
Bankers are confident favorable auto loan rates are here to stay – at least in the foreseeable future.
“We expect the good auto loan rates to continue maybe 'til early next year,” said Fernandez of
EastWest.
De Claro of UCPB echoed the same view. “We believe it will remain that way until 2014. Beyond that, we'll have to wait.”
In general, loan rates are convenient to buyers on credit, but experts are raising the red flag and telling first-time buyers to be mindful of the terms and financing schemes to avoid experiencing a crash and getting burned.
Learning from lessons of the past, Pilapil now plans to approach various banks for the best comprehensive car plan – including insurance, third-party liabilities and low monthly amortization.
Canvassing for the best rate is a must, said Alvin Tabañag, registered financial planner and author of “Kaya Mo, Pinoy! 12 Steps to Build Wealth on Any Income.”
Tabañag, who is also founder of Pinoy Smart Savers Learning Center, explains how a small difference in loan rates can mean a world of difference for the first-time buyer.
For a P1,000,000 loan payable in 60 months, a 2 percent difference in interest rates translates to paying P60,000 extra over five years, he said.
Low interest rates and discriminating consumers revved up the competition among banks to fever pitch. Banks are now neck and neck in giving the best quality service and flexible payment terms.
“We are positioning ourselves in quality service,” said EastWest's Fernandez.
UCPB uses a different tack.
“We adjust to their (clients') needs... We also do our best to meet their preferred timeline,” said De Claro.
Maybe the low interest rate regime explains why soured loans of big banks remain manageable at 2.5 percent of the total industry loans as shown by the latest Bangko Sentral data.
'Trial Run'
Consumers can also learn from books and financial planners how avoid being a number in the statistics on bad loans.
For general tips on car financing, Tabañag shares what he calls the “Trial Run” system.
“In this system, you determine how much you will be paying monthly if you avail of the car loan then set aside this amount and exclude it from your monthly budget for the next four to six months,” he said.
This gives the prospective borrower the chance to see the budget bottom line and if it is feasible in financial terms.
“Determine your budget and how much monthly amortization is light on your pocket,” Fernandez noted.
There is also the “Save Then Buy” approach, suggested by Tabañag, noting the plan is to first save a significant amount before buying a big ticket item.
“The more money you save, the bigger the down payment you can make which significantly lowers the difference in total amount you pay,” Tabañag said.
Apart from the savings on interest payments, Tabañag noted the “Save Then Buy” strategy gives the consumer more time to think about what to buy. – VS, GMA News
source: gmanetwork.com
