So you used to take the MRT, maybe a bus or a jeep ride to work, graduated to ride-hailing apps and before too long realized that you could probably afford a car.

Great idea, bad for traffic. I know what you’re thinking, one more car won’t bring EDSA to a screeching halt right?

Of course it won’t but that’s really not the question you should be asking.

If your ‘eureka moment’ is fortified only by the premise that the sum of your monthly commuting expenses is less than your paycheck, you’re using the wrong equation.

Pardon the long read but if you don’t want to star in the next cautionary tale about repossessed and/or abandoned vehicles, this is one post you can’t just seen-zone.

Pay check: Can I really afford a car? image

Capacity to pay

From the buyer’s position, conventional wisdom (coming really from financial experts) dictate that only 10% of your gross monthly income should be allocated for auto payments.

Proponents of this rule opine that it gives you flexibility to either save money for the future, pay for well-deserved vacations, or to allow you the occasional shopping spree.

You can push it a little further but understand thoroughly what you’re giving up – daily Starbucks, weekly dinner dates, etc. – in order to afford the vehicle.

If you do hike up the budget, be responsible enough to know that it still shouldn’t eat up money to pay for daily essentials and, more importantly, the monthly bills.

Banks look at your salary from a totally different perspective. Experts on the matter like Ton Carabeo (Channel Manager, Bank of Commerce) say that to get approved for a bank loan, the monthly amortization of the vehicle you intend to buy should not exceed 30%-40% of your salary, otherwise you’ll almost surely get disapproved.

Based on the information above, I’d urge you to err on the safe side – allot 10% of your salary for the monthly amortization and choose a vehicle based on that budget only.

This way, you don’t give up the lifestyle you’re accustomed to while still enjoying the perks of being a car owner.

Pay check: Can I really afford a car? image

Study the sales pitch

This is where you’ll need more than the average math skills in order to discern and determine where to buy or who to take a loan from.

A good rule of thumb is to have money enough for 20% downpayment of the vehicle’s total cost. Let’s say you’re eyeing the Accent 1.4L GL AT-CVT priced at Php 745,000, have Php 149,000 ready for equity to take the burden off your monthly payments.

Bonnie Cu, Sales Manager of Hyundai Commonwealth says that the two most popular ways of acquiring a brand new vehicle is to buy direct from an auto dealer or go to a bank and get yourself a PO (purchase order).

If you’re not financially liquid, or in other words, don’t have Php 149,000 to pay for the 20% downpayment, your friendly neighborhood auto dealer is your best bet.

They offer ‘low downpayment’ packages but it comes with a standard add-on rate that is non-negotiable and it hovers at around 50% for five years. If you know nothing of interest rates, that number is high.

Chattel mortgage (price higher by about Php 2,000 to 3,000), insurance and vehicle registration are subsidized by the dealer but while it may seem easy on the pocket, remember the add-on rate you’ll have to bear for 60 months.

Getting a bank PO (purchase order) is the more cost-effective way in the long term – more about that below – but you’ll need to put down a significant amount for downpayment, say 20% at least.

What makes this option more economical is the add-on rate for the duration of your auto loan. It varies from between banks and also depends on your relationship with the bank. If you’ve been a loyal patron and know the manager personally, you can haggle the rate down to as low as 24%. That’s more than half of what the dealer offers. You can also negotiate the price of chattel mortgage and insurance, and maybe even spread out the payment over a certain period.

Get a calculator if these figures are too much for your grey matter or better yet, hire an accountant to make sure you’re basing your decision on the right numbers.

Pay check: Can I really afford a car? image

Is it a beater or a keeper?

Forget about factoring in depreciation if it’s a keeper because the vehicle obviously holds a special place in your heart and will only be sold under the direst of circumstance.

The worth of daily beaters on the other hand go hand-in-hand with its value, which basically depreciates every minute you own it.

If you’re wondering by how much, 10% the very first second you drive out of the dealership, 20% in its first year and over 60% in the five years you’re paying for it.

It’s important to keep this in mind because you’ll need to know how much to sell or trade the ‘beater’ for in order to get a fair deal in the market.

Remember that depreciation varies between brands and models so paying a little more for a reputable brand and/or dependable model will have a slightly better payoff in the long run.

Ownership costs

Let’s say the monthly amortization is easily covered by 10% of your salary, the ugly truth is, that’s the least of your worries.

With the new excise tax on fuel and the constantly rising cost of oil in the global market, prices for gas, and even diesel should be taken into consideration along with various other maintenance costs.

Warranty of brand new vehicles will save you money but it only covers major components that break down due what automakers call ‘material fault’ says Jay Martin, Service Manager of Hyundai Commonwealth.

Oil changes and the consumable parts up for replacement like brake pads, air cleaners, oil filter, etc. will be out of pocket. If we’re talking repairs caused by accidents and crashes, that could go from the thousands to hundreds of thousands depending on the damage.

Then, there’s insurance. Philippine law mandates auto owners to purchase TPL or third-party liability insurance only, comprehensive is optional.

Pay check: Can I really afford a car? image

I urge you to take the latter.

Comprehensive auto insurance gives the vehicle owner financial protection from car theft, auto damage and bodily harm that may arise from a vehicular accident and/or liability caused by it.

TPL only covers the liability (expenses you’ll have to shoulder) of the insurer (that’s you) in the event you accidentally injure a third party (pedestrians, other drivers, your passengers that are not members of your household or family and are beyond the 2nd degree of consanguinity). It does NOT cover liability to any sort of property, whether it’s the vehicle, other vehicles involved in the accident and/or damage to standing properties in the scene of the collision.

Aside from the financial security it provides, comprehensive coverage gets your insurance company to do all of the paperwork and legwork to either get you physically back on your feet or get your vehicle back on the road.

Pay check: Can I really afford a car? image

Last, but definitely not the least, parking.

It may seem like an inconsequential expense but aside from paying a hefty fine if you’re towed for being an ‘obstruction’ on the road, parking rates in CBDs almost rival two-star hotel rooms. Factor this in before even thinking of buying a car.

Here’s a sample computation of what you’ll spend to maintain and use a Hyundai Accent 1.4L GL AT-CVT for the first year, granted that you live and work in the city:

Average PMS (periodic maintenance service)

Every 3 months or every 5,000 kilometers

Php 4,5000 x 4 = Php 18,000

Fuel

Consumption of 10 km/liter travelling some 30+ kilometers per day

Php 8,000 x 12 months = Php 96,000

Insurance

Php 15,000 per year = Php 15,000

Parking

For argument’s sake, let’s put it down at Php 100/day

Php 100 x 5 days x 4 weeks x 12 months = Php 24,000

That’s a total of Php 153,000 per year or Php 12,750 per month on top of your monthly amortization, and that’s just on the first year.

The older your vehicle gets, the more care it needs. After the first two years, you’ll need a new battery (around Php 3,500), swap the front tires for a new pair (roughly Php 2,500 each) and new brake pads (Php 5,000 each for the Accent and you’ll need the two in front). Three years and beyond, you’ll have to pay for vehicle registration, which is about Php 4,500 per annum, plus the pricey TLC (tender loving and care) it will require.

While the above may be a lot to take in already, here’s another mind-boggling question, “Where are you parking that at home?”

That’s been the oft-ignored essential by majority of vehicle owners in the Philippines. It seems like every one is of the mind that parking it along the street in front of your house is totally acceptable.

Let me tell you as a taxpayer who partly funded the construction of roads in the Philippines, IT IS NOT!

Roads are not parking spaces and just because your house happens to be in front of this patch doesn’t give you the right to sequester it as garage for one of your 5 vehicles.

I appreciate how some are kind enough to make sure that their cars are safe from the elements by erecting a makeshift, semi-permanent structure with tarpaulin, some tubes and cement but that makes you no better than squatters who simply take public property because they don’t have a place to go, or for your case, no place to park your vehicle.

Senate Bill 201 is pending in congress right now. If approved, it will mandate buyers to present to the Land Transportation Office proof that a parking space exists for the vehicle, otherwise registration will be denied. Duping the LTO will have penalties that include a Php 50,000 fine, revocation of vehicle registration and suspension of owner from registering any vehicle under his name for three years.

It was filed in 2016 and it’s taking a while but I hope it becomes a law ASAP.

Pay check: Can I really afford a car? image

The purchase

Still unfazed by the expenses?

All you need are two valid IDs, a certificate of employment, bank certificate and a copy of your Income Tax Return.

If your salary does not reflect the amount required for the loan, get yourself a co-maker. Could be wife, parent or even a friend.

A co-maker in legalese is someone who lends his credit by joining in the principal debtor’s obligation, so as to render himself directly and primarily responsible with the principal debtor. In other words, you’re telling the bank that’ll you’ll pay the car loan if the borrower doesn’t, but you don’t get to take home the vehicle.

Spouses are automatically co-makers of their significant other; banks require this arrangement. If legally separated, a waiver is necessary before the loan can be processed.

By the way, don’t bother haggling for freebies like slip-free mats, tint or chattel mortgage. One-price policies by most automakers in the country have patched this loophole up. They lowered the downpayment so you can use the money you saved for all that extra stuff.

What to do if you can’t afford it anymore?

About 80-percent of vehicle purchases over the past several years have been on installment basis and not surprisingly, there’s also been a high rate of ‘past due’ units repossessed due to payment default.

Carabeo says call center employees are considered ‘high risk’ because most delinquent accounts come from this industry.

Should you find yourself in a pickle already and are unable to continue with your monthly amortization, there are very few options for you.

Restructuring the auto loan is not possible. Rate given to you is fixed and changing it to lower your payment scheme is next to impossible.

You can refinance your current auto loan by having a new bank assume the balance and spread out on longer or lower terms but the chances of pulling this off are slim to none adds Carabeo. The only way this happens is if you’re financially sound (post-credit investigation by the new bank) and that your troubles with the old bank are more personal in nature; i.e. you had a personal spat with the bank manager and no longer wish to do business with them.

If you know you’re about to miss an upcoming payment, save your credit score by asking the bank for a break – but expect it to be a very short one. You can get a reprieve of three months max but not without a promissory note. After that, they’ll be back to bill you again.

If you feel like your financial woes will last longer than 90 days, surrender the vehicle right away. Otherwise, expect repo guys to break into your garage and take the vehicle using stealth or reasonable force (they can legally do that), or wait for your Writ of Replevin delivered by the sheriff who will also take the vehicle away from you.

Either way, it’s a lose-lose situation for you.

Pay check: Can I really afford a car? image

Check yourself before you wreck yourself

Owning a vehicle is hard, as it should be. It’s part of adult-ing and as such, comes with a truckload of obligations.

Do the math and your due diligence to make sure that you’re capable of taking on such a huge responsibility.

I understand that driving around in a brand new vehicle is major plus points for your rep, but imagine the kind of wreck your rep will be after the vehicle gets repo-ed.

The thrill of ownership is totally invigorating but alas, it only lasts as long as the new car scent. The pain of the payments and the bad credit rating, that lasts for far longer.