Financial Impact of Defaulted Car Loans in Automotive Industry
CHAPTER I
The Problem and Its Background
Introduction
Car loan is one of the consumer’s credits that are applied for personal use of a vehicle. This is usually unsecured and it is based on the borrower’s ability to pay. Most consumers need financing or leasing to acquire a vehicle. This paper explores how the defaulted consumer car loan affects the Philippines Automotive Industry.
Base on Esquire Financing Incorporation, they seek the five C’s of credit from their borrowers which are character, capacity, capital, conditions and collateral. EFI seek into character – the individual’s credibility and reputation, as can be determined through their credit reports and personal references, and capacity – or one’s ability to repay the loan. A healthy starting capital (which may include the owner’s personal assets) and financial conditions also help make for a favorable case for the business.
Car loan default is generally not good for either the borrower or the lender. As soon as a loan has been identified as default, the lender can pursue car repossession and charge off. The lender will typically take back the vehicle, may take with repossession, resell it, and charge the borrower for the balance. The lender may take this unpaid amount, place it in collections, and consider it a charge off the tax purposes. That means it is an amount of money that the lender expects to lose. Because the negative impact of a dealership closure is network wide, how manufacturers respond today is now more important than ever. This paper outlines the relationship of consumer’s financial distress against their specific impact on the automotive industry such as delayed research and development, and bankruptcy of common dealership.
While the number of people who use bank financing to buy cars has gone up, the number of borrowers who have gone into default has also increased. Figures on credit cards are better, but not too rosy – with the receivables to total loan portfolio (TLP) ratio so far
The Problem and Its Background
Introduction
Car loan is one of the consumer’s credits that are applied for personal use of a vehicle. This is usually unsecured and it is based on the borrower’s ability to pay. Most consumers need financing or leasing to acquire a vehicle. This paper explores how the defaulted consumer car loan affects the Philippines Automotive Industry.
Base on Esquire Financing Incorporation, they seek the five C’s of credit from their borrowers which are character, capacity, capital, conditions and collateral. EFI seek into character – the individual’s credibility and reputation, as can be determined through their credit reports and personal references, and capacity – or one’s ability to repay the loan. A healthy starting capital (which may include the owner’s personal assets) and financial conditions also help make for a favorable case for the business.
Car loan default is generally not good for either the borrower or the lender. As soon as a loan has been identified as default, the lender can pursue car repossession and charge off. The lender will typically take back the vehicle, may take with repossession, resell it, and charge the borrower for the balance. The lender may take this unpaid amount, place it in collections, and consider it a charge off the tax purposes. That means it is an amount of money that the lender expects to lose. Because the negative impact of a dealership closure is network wide, how manufacturers respond today is now more important than ever. This paper outlines the relationship of consumer’s financial distress against their specific impact on the automotive industry such as delayed research and development, and bankruptcy of common dealership.
While the number of people who use bank financing to buy cars has gone up, the number of borrowers who have gone into default has also increased. Figures on credit cards are better, but not too rosy – with the receivables to total loan portfolio (TLP) ratio so far