More auto loans are being given to OFWs the past two years, the PSBank President says. Is that good or bad for the OFW Family?

There are two sides to it. And it all boils down to what is called good debt and bad debt.

Let me give you a glimpse of the news article from Inquirer.net then lets discuss when it’s a good idea and when it’s a bad idea to get an auto loan.

Auto loans to OFWs rising

Demand from overseas Filipino workers (OFWs) is driving up the growth of bank loans for vehicle purchases, opening up a new niche especially for dealers of vans, Asian utility vehicles and sports utility vehicles, a bank president said.

About 22-23 percent of new auto loans now being released by Philippine Savings Bank, the country’s second-largest thrift bank in assets, can be traced to contracts with OFWs and their families, bank president Pascual Garcia III said.

“That started about two years ago,” Garcia said, noting that OFWs were not only spending for housing and household appliances but also for vehicles.

He said this also reflected the changing profile of OFWs, with more getting employed in higher value-added, higher income jobs.

Garcia said OFW borrowers would take up an average loan of about P700,000 with a tenor of three years. These clients would usually pay 20 percent in upfront equity and amortize the rest, he said.

Is it a good idea for an OFW to take out an auto loan?

Short answer: It depends 🙂

Long answer: It depends on a couple of things

  • Capacity to pay
  • Benefits of getting a car
  • Costs of getting a car
  • Other risks

It’s a bad idea if the OFW and his/her family are in one or more of the situations below:

  • Capacity to pay
    – OFW’s paycheque not enough to pay for monthly loan amortization. Leads to bad credit
    – OFW not sure of getting a regular monthly paycheque. Increased risk of delinquency
    – Monthly car loan amortization consumes more than 30% of OFWs remittance
    – OFW’s money used for loan payments without leaving any money for savings or investments
  • Benefits of getting a car
    – Car is used for “show”. The OFW’s family just wants to be “sikat”
  • Costs of getting a car
    – Family insisted on getting the more expensive top-of-the-line car instead of the economic but equally effective car (maybe a used car would have been better).
    – OFW’s family spends for gasoline and car maintenance, beyond their capacity to spend for these added costs.
  • Other risks
    – Faster depreciation of car due to mis-use (by relatives, friends)
    – risk of road accidents

On the other hand, it is a good idea to get that car loan when the OFW and his/her family are in this situation:

  • Capacity to pay
    – The OFW is comfortable paying the monthly amortization.
    – There is enough money for savings, investments, for the family’s education, for consumption, for health maintenance. The loan amortization does not adversely affect these monthly allocations.
  • Benefits of getting a car
    – The car is used to generate more income for the family. For example, an AUV used for hire. Or for deliveries in a business.
    – The car is used to improve the productivity of the family. Bring family members to work or to school faster, gives them more rest to be more effective at work or at school.
    – The car gives the family more mobility and safety.
  • Costs of getting a car
    – OFW’s family spends for gasoline and car maintenance, but it’s within their capacity to spend for these added costs.
  • Other risks
    – The family uses the car wisely, maintains the car and remains safe at all times. Family reduces risks of unexpected expenses due to car maintenance or accidents.

The scenarios above help determine whether it is a wise idea to get a car loan.

At the end of it all, does the car bring benefits more than costs? Is the car a worthwhile investment? Use a loan calculator, and compute all related costs of the car loan. Make sure you’re getting the car loan aware of all other costs (and benefits) of having a car.

The good news from PSBank’s president is the positive trend in auto loans:

He said some OFWs preferred vehicles with more passenger and cargo space, like vans and Asian utility vehicles, so they could be used for both business and personal purposes.

Read complete article on Inquirer.net : Auto loans to OFWs rising >>

Good thing more and more OFWs are in the entreprising mindset. Go negosyo, Go OFW entrepreneurs!

Mabu-hey!

ka edong
not loan-ly 🙂

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