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Should You Car Loan for a Used or Secondhand Car

When going for a new or used car, you're almost always presented with two options right when you're about to make a payment: Cash or Car Loan.

And while each of these options comes with their respective pros and cons, each of which more important than the last, the option you must choose should undoubtedly reflect your capabilities. Whichever the case, however, one isn't crystal clear when he or she is beset with other essential factors down the line.

In this discussion, we'll attempt to differentiate the route to buying your new or used car with financing vs the journey to getting it by paying it in full cash relative to your needs as a consumer.

Essential Things To Consider Before You Apply for a Car Loan

1.) Determine Your Budget

Whenever one is offered with an item that features a steep price, the allotted budget in your pocket soon comes to the scene. The same can be said and should be determined if you're feasting on a particular car dealership for your car, but with a different, altogether more mature kind of question: What's your monthly budget?

You've got an excellent reason to ask yourself so applying for a car loan equates to almost a lifetime worth of your hard-earned money, all of which ready to be disposed of every month.

Nowadays, a better way to approach a car loan is by determining the overall cost of the vehicle or the final price tag. The utmost pricing includes the total number of payments and interest you're legally bound to pay.

With this in mind, you'll be able to limit yourself with only the crucial features in a car in tow, without going beyond your means. This is especially true as most first-time car consumers would often get riddled with whims with some of the most attractive offers in a jiffy.

So it's time to revisit the trait that could be the most important in this regard: self-control.

2.) Get Acquainted with Your Credit Score and Reports

Talking about self-control, it's always a good idea to get yourself acquainted with how you perform financially by looking at your credit scores.

In the Philippines, while credit scores aren't exactly a thing, most car buyers still rely on them as you won't be able to secure a car loan without a glowing one, especially from a car dealership's perspective.

Now if you harbor a poor credit in your portfolio, the likelihood of you qualifying for the higher rate is high than if you had a better one. As it is, it is crucial to decide right from there whether this car loan is for you. Easily the smartest thing to do in this regard is to wait and work to improve your credit first.

On the other hand, if you are but a gold standard on all things credit ratings, then kudos! This powerful feature of yours is already a high bargaining chip in itself, one that is sure to be sought by numerous car-financing institutions.

Shopping Around For Car Loans

If you have successfully re-educated yourself where your credit ratings truly stand, you can now begin collecting quotes from various establishments. These include banks or credit unions, dealerships, and online lenders.

Getting a quote nowadays is made easier thanks to the birth of the internet. As opposed to visiting or calling, you can now check the sites you mean to transact with and ask for a quote.

Once you're able to land on a lender or a banking institution with terms that won't break your wallet, the next best step you have to accomplish is getting pre-approved for the loan. Remember, however, that "pre-approval" doesn't always indicate a guaranteed "yes" from these firms.

If you get pre-approved for a loan, the lender typically provides a preapproval letter, one that you can take with you when you go car shopping. Ultimately, this letter can be used as a bargaining chip.

It is crucial to understand in this regard that you don't have to take out a loan for the full amount you're pre-approved for. Should a car you're already satisfied with comes with a lower price, you can always apply for a smaller loan.

A Personal Loan? Why Not!

There's an excellent reason why personal loans are much preferred nowadays – their interest rates are just way more reasonable. As an asset typically secures car loans, lenders would often offer lower rates than they do on unsecured loans, which also include unsecured personal loans.

A personal loan also comes with some advantages. For instance, if you're currently underwater on your high-interest auto loan, chances are you may not be able to refinance to cover the amount that you owe. A personal loan is still accessible at this point to help you settle your auto loan.

The Other Way Around: Paying Cash for a Used Car and its Advantages

Financing a car is essentially an involuntary step for modern consumers. The reason behind this option couldn't be more accurate for the inhabitants of today's world: very few people pay cash for a car as their average costs are now skyrocketing. But for the customers who swear by the convenience of cash, there are still other notable reasons as to why paying money is the way to go:

1.) Less Spending by Paying Cash

While paying cash for a new or used car is challenging, with you pulling money from your savings account to purchase a vehicle that you know will soon go down in terms of value, concerning the final cost of a car isn't a thing in this option. So long, of course, that the cash you're paying for comes directly and immediately out of your account.

Perhaps the harsh truth that needs to be divulged in this respect is that financing will only encourage you to buy a pricier car in the process.

2.) More Discounts

Paying cash can also get you discounts, with tons of them if you happen to be strolling at a dealership which does all sorts of discount promos. Finally, when you get to pay cash, a better price can be negotiated, without you worrying for some ballooning interest in the latter segment of the transaction. This is especially true when going after a used car.

3.) You Avoid Paying Interest

Probably the most crucial benefits one can ever experience when paying in cash is the absence of interest in the succeeding transaction.

4.) Paying Cash Betters Your Financial Discipline

Like most with the case of the consumers who opt to pay cash instead of financing their car, discipline is easily their most characteristic trait. And while paying money in full in this regard is no easy feat, the greater seed that comes out of this session is that you inspire yourself further to become a better, financially-disciplined consumer.

5.) Recalibrates Your Life's Priorities

Another gem that can be found when paying cash is that it forces you to assess your life in ways that are beneficial to your priorities. Questions such as the importance of the difference between choosing between a car and getting out of credit card debt will most likely be re-examined.

6.) Other Financial Goals are Prioritized

If you choose to go with this route, the likelihood of you realizing that a car is one of the most important investments you'll ever buy in your lifetime is already well-actualized. And at this point, your other financial priorities are also realized, if not contemplated on with more focus.

The Dilemma of Not Having Enough Cash

Of course, there are those consumers who still fall prey in this kind of ordeal: That awkward time when your cash just isn't enough to pay that car that you want in full. But what do you do in this scenario?

Finding a cheaper car is the next, logical thing that you can do while your cash is still insufficient for "the" car that you want. If you couldn't afford the car in front of you and then you go on and finance it anyway, that's a wrong financial decision. This is no different from purchasing a flagship smartphone in the market through your credit card with interest. In essence, it's money that you're going to spend that you will never get back in return.

Once you find a cheaper alternative car, an item that will now allow you to pay in full, worrying over the interest is already out of the equation. Should you still don't have cash in this situation, move forward and look for the cheapest car possible and work and finance on it, as little as possible.

There is, of course, the age-old advice: Wait to buy until you save more money. This one truly makes sense in this regard as there is nothing more dangerous when one raids their emergency fund to purchase a car they can't seem to afford. Now, there is a reason why these funds are labeled as such, and we're sure buying a car isn't one of them.

How To Pay Cash For a Car

Once you already agree with the alternative of paying the car in cash, just how do you do it without risking your savings and your security?

1.) Be Honest About What You Can Afford

The trap most people fall into when dealing with car dealerships is the reliance of consumers on dealers or salespeople to decide what they can afford. Consequently, the most expensive car in your entire life is born and you're left all frazzled with the incoming payments.

Don't be like these customers and get real about just how much you can afford on a new or a used car. You have to decide before how much is enough in a way that it won't affect your financial situation adversely, alongside your future financial goals.

2.) Be Real About What You Should Afford

Simply because your account can afford it, ask yourself: Do I really need to purchase this item? This mainly includes buying cars for the most obvious of reasons. Remember that a vehicle isn't a smartphone; it is a lifetime investment that can't be answered by a fortune-teller. Look at how future payments will impact your life.

3.) Sell Your Current Car and Go For a Cheap One

Most consumers mistakenly buy pricey cars that they themselves can't afford. If it is not too late, sell this existing car and buy a cheap one. But if you're genuinely underwater, ask yourself whether you have the cash to buy a cheaper one in the market.

4.) Setting Up a Budget For Your Next Car

Whether you're replacing your current car with a newer model or buying a new one altogether, setting up a budget for your next big car purchase should always be treated as a priority. Key details such as the model variant, the price range, and the duration you will need to accumulate these new savings must be considered with great importance.

Car Financing in the Philippines

Out local car-financing processes are currently governed by the Consumer Act of the Philippines. This is the law which covers the guidelines in which a lender and a borrower must take heed of.

The Consumer Act in the country represents protection for both parties. As it is treated as a binding commitment, the lender that provides the car financing should give the borrower with the approved amount and must fulfill his obligations, based on the stipulations in the accompanying contract. On his end, the borrower must also adhere by paying his monthly installments or settle them when it is due.

The entities in the country in which one can come to when car financing is in their cards are banks, credit unions, car dealerships, and family and friends. Each of these entities come with their respective advantages and disadvantages, ones that must be understood first before finally deciding which one is the more viable option.


You can tell by now that there is no such thing as a wrong payment when buying a secondhand car. There are certain circumstances in our financial lives which are all inevitable, but these are just okay. So long as you reflect these situations with the most viable option in front of you, we think highly of you, regardless of the alternative you are about to choose.

We think that the most critical element in having to choose whether you're going for cash or financing is that you are all prepared and determined. If you muster these traits and align them with a payment option that best mirrors your lifestyle and financial situation, then we know that you are all settled.