What’s it like to get an auto loan during the pandemic?

You’re crushing on the new Toyota Hilux (who isn’t?), and it’s perfect timing because your old whip is down to its final revs. But like most, you’re not a cash-on-hand type of buyer. Can you get an auto loan right now?

If you’re a healthcare worker, it’s a big “yes!” There actually isn’t a better time than right now, and I can’t stress that enough. In fact, there are numerous promos from various brands just for you, and even express lanes at the dealership so you don’t waste your time sitting and waiting.

For everyone else, take a seat and hear me out.

This COVID-19 pandemic has not only caused a global health crisis; it has also put us in dire economic straits. In the US, it’s the worst since the Great Depression of 1930. At that time, banks collapsed, depositors lost their money, businesses couldn’t get loans, jobs vanished, and personal income dropped.

Fortunately, the global financial system is so much more robust compared to a century ago and banks now have a credit rating classification specifically designed to prevent countries from plunging into debt, which brings us to the topic of loans.

Bank standards with regards to loan applications are still the same – the process, the documents, and even the rates haven’t changed one bit. That’s not to say banks haven’t become more “choosy,” in a manner of speaking.

With so many businesses downsizing, some closing down, almost all industries are volatile and that’s what banks are keeping their eye on: What industry you are in.

If a company as big as ABS-CBN can shut down (for a non-virus-related issue), how do you think your office will hold up against a virus that has killed more than 3,000 companies locally?

And don’t bother picking and choosing banks because they will all do the same thing: Assess your loan application based on your financial capability to pay. Obviously, your perceived capability is tied directly to the industry you’re in.

In case you’re wondering about that, just look at the business your company is in and check how your competitors are doing. If Competition A has shut down or Competition B has laid off employees, you’re in a “volatile industry,” which means you’re a “high-risk loan.”

According to Ton Carabeo, an auto loan manager from a top bank, employees from top corporations will be okay, but workers in pandemic-affected industries will find it hard to get their loans approved. It’s not discrimination; it’s a premise based on fact. Banks make money by charging interest on money that they lend. If you can’t pay your loan (let alone the interest), banks won’t make money, and if that happens, banks will shut down. That’ll put us on an expressway straight to depression.

So, forgive banks for being extra careful with the money they loan out these days. Say goodbye (for now) to “one-day processing” and expect delays. Banks will be doing more intensive background checks and of course, the limitations due to local health and safety protocols of the Inter-Agency Task Force on Emerging Infectious Diseases. Credit investigators can’t go out regularly like they did before, and interviewing people has become a lot harder now with the physical distancing rules, the mask, and the face shields. Also, banks reps aren’t waiving documents anymore to speed up the processing of your loan.

In case you lost your job and you’re still in the middle of the loan period, just return the vehicle. Call the bank and arrange to surrender the “asset” because yours is now a “non-performing loan.” Otherwise, the bank will initiate a replevin order, which means repo guys will be coming to take the vehicle from you. Either way, your credit rating will take a big hit.

If you really want to keep the vehicle even in your situation, call the bank and suggest or propose possible scenarios, but know that chances are very slim in your favor. And remember, you will still incur penalties and it will cost you more the longer you keep the vehicle.

For the “borrowers” in the middle of a loan and don’t understand how the Bayanihan Act affects their monthly payments, including interest, as per the Bangko Sentral ng Pilipinas, you’ll also be paying accrued interest.

During the grace period that lasted for 2.5 months in the ECQ (enhanced community quarantine), payments for the month of April and May 2020 were not condoned but simply moved to the back end of the loan. That means if your loan originally ends on January 2021, because of the ECQ grace period, it will now end on March 2021 and will include the accrued monthly interest totaling the same amount as the loan’s interest per month. For example, if your monthly payment is P12,000 (P2,000 of which is the interest) it becomes P14,000 inclusive of the accrued interest. Clients may opt to spread out the accrued interest over the period of the loan should it be too big for one-time payment.

It’s not going to be easy for business owners of small and medium enterprises as well. If you’ve just shifted careers, voluntarily or otherwise, and started a promising business, you won’t even be eligible because the main requirement is the business must have been stable for at least two years. Banks statements will be checked along with the location of your business and even your rent. If you’re thinking of putting up another asset (like your house) as collateral, Ton says it doesn’t really work that way. The vehicle is the collateral so you can’t actually put something else up in its place.

Auto dealerships need a sale to move inventory, recoup losses, and to stay afloat, which is why you’re seeing eye-popping prices and promos you may never again see in your lifetime.

I know it makes it so tempting and you want to take advantage of this super rare opportunity but during these unstable times, you have to be smart. I always tell my son: We’ll get it only if it’s a need and not a want.

So, to answer the question: “What’s it like to get an auto loan during the pandemic?” It’ll be hard, really hard, and in the end, you may not even get approved.

If you really need it, then good luck, but if it’s an expense that can wait, the International Monetary Fund (IMF) says we may see partial recovery by 2021. I’m sure you can keep your old jalopy together for a few more revolutions.