What’s The Catch? Low Down Payment Schemes For New Vehicles

We are less than a month away from the Christmas season and already there is another smell that lingers in the air apart from the savory aroma of ham and “chestnuts roasting”. We’re also getting a whiff of the smell of money, with bonuses flying left and right, and everyone anticipating their 13th-month pay. Of course, one of the biggest aspirations of every working Filipino right now is to earn enough money – through bonuses and otherwise – to drive home their own car.

This holiday season, expect the car industry to have their last hurrah of the year by showering the public with promos such as low down payment schemes. Some cars, especially units that belong in the subcompact tier, can be yours for as low as P15,000 upfront! Although these promos sound great, what’s the real score in those insanely low down payments? We did the math for you, so you can make sane decisions when buying a car.

For those who cannot pay a car’s sticker price with spot cash, you can finance your dream through a loan. Prospective car owners can choose between in-house financing or through car loans straight out of banks. However, car loans through banks require potential buyers to fork out at least 20 percent of the unit’s sale price. Despite the lower interest, this is a bit out of reach for your average Filipino.

Since most future car owners would rather go with cheaper upfront payment, let’s compute how much people are going to pay in total when they avail of these low down payment options. For this exercise, let’s just use Toyota Vios 1.3 E M/T which is currently priced at P818,000.

What's The Catch? Low Down Payment Schemes For New Vehicles

Based on one dealer’s offer on his website, the said Vios is available for the same price—but the website offers the unit for a much lower down payment. For only P20,000 “all-in,” you can get the unit and this down payment already covers the initial payment, chattel mortgage fee, comprehensive car insurance, and vehicle registration. So far, so good, right? To make monthly repayments more amenable, they’re offering amortization of up to five years or 60 monthly repayments.

According to their computation, you must pay P17,359 every month for 60 months. By the time you’re done with your repayment, your auto loan account’s total payable will be P1,041,540 on top of your P20,000 down payment. The total interest you’ve incurred during the entirety of your auto loan is P243,540,

How does it stack against bank-financed loans? Using a bank’s online auto loan calculator for the same Vios variant, they will require you to pay up to P163,600 as down payment for the loan and they will finance the remaining amount. You then have to pay P13,963 every month for the next five years, which will come up to P837,780 when you’ve completed it. All in all, you’ve paid P1,001,380 for your car and the total interest is P183,380.

Confused? Let’s put them side by side:

Toyota Vios 1.3 E A/T
MSRP: P818,000

“All-in” 20K promo 20% down payment
Down payment P20,000 P163,600
Term 5 years 5 years
Monthly payment P17,359 P13,963
Total monthly repayment P1,041,540 P837,780
Interest P223,540 P183,380
Total amount paid P1,061,540 P1,001,380

The difference between the two may confuse you at first, especially if you look at the down payment for both loan programs and the total amount you’ve paid once you’ve completed your amortization. After all, a P60,000 difference wouldn’t hurt in a grander scheme, right? However, to understand how these low down payment programs can severely affect your budget, take a closer look at the monthly repayment for both schemes.

For an average Filipino family, the P4,000 difference taken away from your household expenses and diverted into car payment means a lot. And when those two payments start to pile up, the contrast between the two become more visible. After five years of amortization, the disparity between the two will grow to around P203,000. Factor everything including the down payment and saving up for a car’s 20 percent upfront payment is still the wiser move. You may say that it’s easier to get a car by availing those low-DP “all in” promos but in reality, you’re not thinking far ahead.

If you want to see more clearly the difference between the two, let try another example. Below, we crunched the numbers for a Toyota Fortuner as well. As of posting time, the discounted down payment is P146,000 or barely 10 percent of the unit’s sticker price.

Toyota Fortuner 4X2 G DSL A/T
MSRP: P1,555,000

Discounted down payment 20% down payment
Down payment P146,000 P311,000
Term 5 years 5 years
Monthly payment P33,000 P26,543
Total monthly repayment P1,980,000 P1,592,580
Interest P571,000 P348,580
Total amount paid P2,126,000 P1,903,580

See the difference now? For the Fortuner, the difference is more than P200,000! With a car that has a larger price tag, you can see how lower-than-usual down payment can strike back in terms of monthly amortization. Couple this with the longest payment term and you’re looking at the most expensive way to own a car.

Keep in mind that everything comes at a price. If you think you’re saving money by paying a low down payment on in-house auto loans, then buckle up because you’ll be paying more in the long run. Do the math, compare some notes, and see if the promised low down payment is actually low.

Sources: Top Gear Philippines, Toyota, Toyota Financial, Autodeal, BPI Autoloans