Acquiring a vehicle through a bank loan is a common financial milestone in the Philippines. However, many borrowers sign the voluminous documents—primarily the Promissory Note with Chattel Mortgage (PNCM)—without fully grasping the legal weight of the provisions.

Under Philippine law, specifically the Civil Code and the Chattel Mortgage Law (Act No. 1508), a car loan is a bilateral contract that creates specific rights and duties for both the borrower (mortgagor) and the bank (mortgagee).

1. The Core Obligations of the Borrower

The moment you sign a car loan agreement, you assume several primary legal responsibilities:

The Duty to Pay: This is the most fundamental obligation. The borrower must pay the monthly amortizations on or before the due date. Failure to do so constitutes default (mora).
Maintenance of Insurance: Banks require a "Comprehensive Insurance" policy with an "Acts of Nature" (AON) clause. The policy must be endorsed to the bank as the beneficiary (Loss Payee).
Property Preservation: Since the vehicle serves as collateral, the borrower is obligated to keep the car in good working condition. Significant alterations or using the vehicle for purposes not disclosed (e.g., turning a private car into a "colorum" public utility vehicle) may violate the terms.
Payment of Taxes and Registration: The borrower must ensure the annual LTO registration is updated and all related taxes are paid.

2. The Rights of the Borrower

Despite the stringent requirements, the law provides protections to borrowers to prevent predatory practices:

Right to Full Disclosure: Under the Truth in Lending Act (R.A. 3765), the bank must provide a clear breakdown of the total cost of the loan, including the cash price, down payment, finance charges, interest rates, and any other fees before the transaction is consummated.
Right to Recto Law Protections: In the Philippines, the Recto Law (Art. 1484 of the Civil Code) applies to the sale of personal property on installments. If the borrower fails to pay two or more installments, the bank may:

Exact fulfillment (sue for the remaining balance);
Cancel the sale (rescission); or
Foreclose the chattel mortgage. Crucially, if the bank chooses foreclosure, they can no longer recover any unpaid balance (deficiency) from the borrower.

Right to Release of Mortgage: Once the loan is fully paid, the borrower has the right to receive a Cancellation of Chattel Mortgage. This document must be filed with the Register of Deeds to clear the vehicle’s title.

3. The Rights of the Bank

The bank’s primary interest is the recovery of the credit extended. Their rights include:

Right to Acceleration: Most contracts contain an Acceleration Clause. This allows the bank to declare the entire remaining balance due and demandable immediately if the borrower defaults on even a single payment.
Right to Inspect: The bank usually retains the right to inspect the vehicle at reasonable times to ensure its value is being preserved.
Right to Foreclose: If the borrower defaults, the bank has the legal right to initiate foreclosure proceedings. In the Philippines, this is often done "extrajudicially" if the contract contains a special power of attorney allowing the bank to sell the car to satisfy the debt.

4. Default and the Repossession Process

In the Philippine context, repossession can happen in two ways:

Voluntary Surrender: The borrower, realizing they can no longer afford the payments, voluntarily returns the car to the bank. This often waives certain storage or legal fees but does not always extinguish the debt unless the Recto Law applies.
Judicial Repossession (Replevin): If the borrower refuses to surrender the vehicle, the bank files a Petition for a Writ of Replevin. A court order is issued, and a Sheriff—not just a private "repo agent"—is legally authorized to take the vehicle.

5. Critical Clauses to Watch For

Attorney’s Fees and Liquidated Damages: Agreements typically state that if the bank has to hire a lawyer to collect payment, the borrower will shoulder the legal fees (usually 10% to 25% of the total amount due).
Cross-Default Clause: Some banks include terms where a default on your credit card or home loan with the same bank can be considered a default on your car loan.
Attorney-in-Fact Status: By signing the PNCM, you often appoint the bank as your "Attorney-in-Fact," giving them the power to renew insurance or perform acts necessary to protect their interest in the vehicle.

Summary Table: Rights and Obligations

Feature	Borrower (Mortgagor)	Bank (Mortgagee)
Primary Duty	Pay installments on time.	Provide the funds/credit.
Collateral	Keep the car in good condition.	Right to seize car upon default.
Insurance	Pay premiums; name bank as payee.	Right to force-place insurance if unpaid.
Post-Payment	Right to have the mortgage cancelled.	Must issue "Clearance" or "Release."