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Credits for August 2022 in the Philippines

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Interest rates on credits in the Philippines

According to the guidelines for Bangko Sentral ng Pilipinas Circular No. 1133, Series of 2021, on the ceiling/s of interest rates and other fees charged by lending companies, financing companies, and their online lending platforms, the maximum nominal interest rate for unsecured loans is 6% per month (0,2% per day), and the maximum effective interest rate is 15% per month (0,5% per day). The caps apply to unsecured loans of no more than ₱10000 and payable within four months.

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Credits for August 2022

Credits

Credits in the Philippines are the trust that allows one party to extend credit or resources to another with the understanding that the second party will repay or return the resources (or other goods of comparable value) at a later date, avoiding the creation of debt in the process.

Credits are a method of formalizing reciprocity, which makes them legally enforceable and extends it to many unrelated parties. The available resources may be material (such as a loan), financial, or commodities or services (e.g., consumer credits). Any arrangement for deferred payment is considered credit. A creditor, also known as a lender, extends credit to a debtor as a borrower.

What is credit?

Credits are agreements you make with a lender to obtain products or services you will pay for late on a set schedule. For example, if you get a loan, the lender will advance the money, but you will have to pay it back over time, plus any applicable interest and fees.

Credit history is another name for credit, and creditors often consider it when deciding whether to grant you a loan, credit card, or other comparable product.

Attention! Strong credit history is essential for increasing your chances of receiving credit at a reasonable rate.

Credits can also refer to a reduction in one's arrears in other situations. Consider the following scenario: someone owes their credit card company ₱10,000 but only returns one ₱3,000 transaction to the merchant. The refund will be credited to the account, reducing the balance to ₱7,000. For example, when a customer uses a credit card to make a purchase, the card is considered a type of credit because the customer is making a transaction to repay the bank later.

How can I borrow a credit?

Credits are fundamentally a social relationship between a creditor (lender) and a borrower (the debtor). The borrower accepts the debtor's promise to repay the loan, often with interest, or face financial or legal consequences. Credit lending has been an everyday activity since the dawn of human civilization.

Today, a standard definition of credit is an agreement to buy something with the explicit promise to pay for it in the time allowed. This is known as a credit purchase. Credit cards are currently the most popular method of making credit purchases. The bank that issued the card reimburses the merchant and credits the buyer, who may repay the bank over time while paying interest fees. The credit agreement now includes an intermediary.

Where can I get a credit?

There are several credit sources in the Filipino economy. Banks, business loans, overdrafts, invoicing and stock finance, credit cards, and so on are just a few examples. Businesses frequently request additional credits for expandable, necessitating funds that are not always readily available.

As a result, businesses are still looking for additional credit/finance sources to meet their funding requirements. People look for credits to cover their regular expenses, pay for school, buy a car, a house, an appliance, etc. Let's take a closer look at the many different forms of credit.

  • Commercial banks. Commercial banks are typically the first source of credit and borrowing that comes to mind in the Philippines. Undoubtedly, these are the most important funding sources in the country. They provide credit to individuals through personal loans, school loans, vehicle loans, home financing, and so on, as well as credit to businesses in the trade and manufacturing sectors and various service providers.

    Banks are an easy way to opening credits because many already have accounts. As a result, they already have business relationships with everyone. They also get along well with the bank employees. However, using bank credit can sometimes be costly due to high-interest rates. Furthermore, banks have the authority to levy various fees, such as bank fees, processing fees, documentation fees, etc.

  • Finance institutions. Banks make it simple to obtain credits because many people already have accounts. As a result, they are already in business with everyone. They also get along well with the bank employees. However, using bank credits can sometimes be costly due to high-interest rates. Furthermore, banks have the authority to levy various fees, such as bank fees, processing fees, documentation fees, etc.

    Because of their emphasis on credits, these banks offer consulting, financial and technical advice, and other services. Financial institutions are an excellent source of credit, especially when a large amount of credits is required over a long period. Furthermore, because of the high-interest rates, the stakes are so high that they may appoint their preferred candidates to the company's board of directors. As a result, a delegation of directors' authority may be limited. Furthermore, they may keep an eye on what the borrowing company is doing, which can sometimes be limited.

  • Credit cards. Credit cards are one of the most popular ways to obtain credits in the country. The bank or business that issued the card pays the vendor on behalf of the cardholder. The cardholder must then repay the total amount within a specific time frame. The cardholder can also use his credit card to withdraw cash. The delegation interest will be charged.

    This credit arrangement is for short periods and sums up the cardholder's credit limit. Credit cards are simple to use and do not necessitate much paperwork. Furthermore, when using a credit card to purchase any good or service, no paperwork is required, making it an instant source of credit. This type of credit has one of the highest annual interest rates — often between 25% and 30% — and if the cardholder fails to make the required remittance, the issuer may levy heavy fines rather than late fees.

  • Trade credit. In the Philippines, trade credits are a source of credit associated with daily business operations. In a trade credit arrangement, a company agrees to pay a seller for goods or services purchased on credit after a certain number of days. The number of credit purchases is credited to the seller's account under the heading creditors on the liabilities section of the balance sheet. It is a short-term loan based on the buyer's reputation and goodwill in the market.

    The quantity of trade credits is influenced by the frequency and volume of prior business transactions, remittance patterns, market competition, etc. The primary advantage of this type of credit is that it usually carries no interest. As a result, the buyer incurs no additional costs when using trade credit. It is also easily accessible, with no formalities or complicated paperwork. It is provided at no cost to the company's assets and is helpful in the event of unexpectedly large supply orders.

    Trade credits have the disadvantage of being subject to the will of the item's supplier. They may abruptly decide not to provide goods and services in the opening credits, which would be disastrous for the buyer. Furthermore, it is a short-term financial arrangement rather than a long-term source of credits. Of course, it gradually becomes a steady source of interest-free funds for a thriving and expanding business. Furthermore, as time and quantum progress, the firm's capability grows.

  • Commercial paper. Commercial papers in the Philippines are short-term opening credits and money market instruments. Businesses typically issue commercial paper to banks, insurance and financial institutions, and other companies. Because of the size of the recognition that can be extended using this method, only companies with a solid reputation and goodwill are permitted to issue commercial papers. Commercial papers are easily transferred and do not necessitate a lot of paperwork. However, the interest rate on these documents is relatively high and exceeds the rates charged by banks and other financial institutions.

    Furthermore, the maturity period cannot be extended because it is a short-term credit source. These loans are typically unsecured, which can be problematic if the lender fails to make payments. Credit ratings are frequently assigned to each of these documents by the agencies.

  • Public deposits. Credits can be obtained from the general public directly through public deposits. The general public may lend business credits for a set period in exchange for interest payments. Because they compete with bank and government deposits, they must offer significantly higher interest rates. It is a short-to-medium-term credit option. Borrowing from public deposits is generally less expensive than borrowing from banks.

    These are also risky. As a result, there is no need to charge the company all the credit. The issuance process is simple, and depositors receive no special treatment or voting rights in the corporation. They would be unsecured creditors in the event of the company's dissolution. However, only companies with a proven track record and a strong reputation can raise funds through such deposits. This credit source is also dubious. Businesses may be unable to obtain funding in cases of immediate necessity or an emergency. Furthermore, because the average deposit period is only one to three years, and the depositor can request an early withdrawal, these are short-term sources.

  • Debentures. Debentures are a long-term source of business opening credits. It establishes rules and includes a statement acknowledging is responsible that the company borrowed money from the holder at a fixed interest rate and intends to repay it over a set period. Due to the fixed interest rate, businesses are aware of the cost of such credits in advance. Furthermore, holders of debentures have no right to any of the company's credit side or management. Tax deductions are available for the interest paid on debentures by the corporation. As a result, it is a dependable funding source for businesses that generate consistent profits.

    Debentures, on the other hand, can occasionally put a strain on the company's finances. The company is required to pay interest on them regularly. Furthermore, redeemable debentures can be issued at any time. The corporation must set aside and block a specific amount to accommodate unforeseen redemption requests. Moreover, these debentures are available in both secured and unsecured forms. Secured debentures will impose a charge on certain corporate assets. When a large sum is at stake, the firms may even appoint debenture trustees to protect the quality of debenture holders.

  • Credit unions. Credit unions are nonprofit organizations that assist people who have a common interest. Because of their nonprofit status and lower operating expenses, credit unions frequently offer better credit and savings than financial institutions. Because sponsoring organizations to provide personnel and office space and some businesses accept loan payments and savings installments from members' wages and apply them to credit union accounts, the credit union's costs may be lower. Credit unions frequently offer competitive rates on savings accounts and personal loans. Credit unions typically have fewer qualification requirements and process full credit more quickly than banks.

  • Savings and loans limited. Long-term mortgage loans on homes and other real estate were previously a savings and loan-limited area of expertise in the Philippines. Savings and loans limited now offer savings-account-secured credits, personal installment credits, home improvement credits, second mortgages, and education loans. They give credit to borrowers with a great credit history and frequently request collateral. The amount borrowed, the length of the remittance period, and the collateral all impact the limited credit rates of savings and loans. Savings and loans limited use depositors' money to lend money, which is a relatively cheap funding source, so their interest rates are typically lower than those of other lenders.

  • Consumer finance companies. Second mortgages and personal installment credits are areas of expertise for consumer finance organizations in the Philippines. They frequently lend money to people with no credit history and require no security. When customers cannot obtain credit elsewhere, consumer finance organizations are often willing to lend them money. However, the interest rate is also higher because the risk is higher. The loan balance and repayment plan terms impact interest rate volatility. Consumer finance organizations prioritize fast processing of loan applications (typically the same day the application is submitted) and repayment plans tailored to each borrower's financial situation.

  • Sales finance companies. If you've ever bought a car, you've probably had the option of financing it through the manufacturer's financing company. These sales finance companies allow you to spread out payments for expensive items such as cars, large appliances, furniture, laptops, and stereo equipment over a long period. Even though you do not deal with them directly, the dealer will usually notify you if a sales finance firm has purchased your installment note. Following that, you pay the sales finance companies each month rather than the retailer from whom you purchased the goods.

  • Life insurance companies. In the Philippines, an insurance company will typically allow you to borrow up to 80% of the total credit value of the whole life insurance policy. Some policy-secured credits are not required to be repaid. However, the amount of the unpaid credit when you die is deducted from the proceeds distributed to your beneficiaries. Because compound interest works against you, it's critical to repay at least the interest component. Life insurance companies have lower interest rates than other lenders because they assume no risks and incur no collection expenses. The value of the policy serves as collateral for the credits.

  • Pawnbrokers. In the Philippines, pawnbrokers are a common source of secured credit. They keep your possessions while lending you a fraction of their worth. You will receive your property back if you make timely loan and interest payments. The pawnbroker sells it at the deferred compensation, though an extension may be negotiated. Even though pawnbrokers charge higher interest rates than other lenders, there is no application process or waiting period. What is the most appealing to pawnbrokers? They rarely ask questions.

  • Loan sharks. These predatory lenders do not have a state-issued license. They only provide a small window of time for repayment and charge exorbitant fees for refinancing, repossession, or late payments. They are notorious for using coercive or illegal collection methods. You may want to avoid them because they are unlawful.

  • Friends and families. A relative may occasionally be your best source of extra credit. All such dealings should be handled professionally to avoid miscommunications that could sever relationships with family and friends. Furthermore, if the IRS learns of an intrafamily credit, it may blame interest, which is revenue for the lender but not deductible for the borrower. Again, being involved in an IRS audit can sever family ties.

Significant types of credit in the Philippines

In a nutshell, the following are some types of credit available in the Philippines.

  • Installment credits. Installment credit is a type of credit in which you borrow a single lump sum and repay it over time with an interest rate in regular set payments or installments. The account is considered closed when an installment credit loan is fully repaid. Statements with installment payments include mortgages, vehicles, personal loans, and student loans.

  • Revolving credits. Revolving credit allows you to withdraw money regularly and repay it up to a predetermined limit from a single credit line. You have control over how much money you borrow (and ultimately need to pay back). If you pay your entire monthly amount, you can avoid paying interest because interest is charged on any amount left over after the due date for each statement. If you make all of your payments on time, the account will remain open until you decide to close it. A credit card is the most common type of revolving credit, but a HELOC is another option (home equity line of credit).

  • Open credits. Monthly payments are flexible with available credit; the entire outstanding amount is due at the end of each billing cycle. The amount owed on your electricity bill is determined by how much electricity you used that month, which makes it an excellent example of open credit. You have a certain number of days after receiving the bill to pay it in full. Utility bills such as gas, electric power, water, cable, and cellular service are considered available credit.

How to apply for credit in the Philippines

Credit applications in the Philippines are highly dependent on the type of credit, the form of honor, and the company chosen by the borrower. In general, a credit application goes through the following steps.

Online application

  1. First, go to the lender's website and check your eligibility and requirements.

  2. If you are eligible, click Apply Now to continue the application process.

  3. Choose the type of credit you want and then click Continue.

  4. Provide the necessary information. Once the form is successfully completed, attach the required paperwork.

  5. Allow time for the lender to review your loan application and respond.

In-branch application

Visit the lender's office and explain why you're there. Follow the directions provided. You must ensure that you have made inquiries about all of the documents that will be required and that they are readily available so that you can access them when needed.

Who is eligible for a credit?

To be eligible for a credit, you must be a permanent resident of the Philippines and at least 21 years old. You must also meet the lender's minimum income criteria for the lender to determine your ability to repay the loan.

Reference! Some lenders require you to have had a credit card for at least six months. For a business credit, the borrowing company must have been operating and earning a certain net income for several years, which the lender will determine, but typically 2-3 years. It must also be an SEC-registered company.

How to repay a credit

The lender also determines the credit payment. After you have paid off your existing credit, you can increase your credit limit. You may receive all the benefits when you pay off a credit card early. Some lenders automatically use auto debit agreements (ADA) to deduct funds from your bank account.

Such credit is usually easier to repay and can assist you in building a credit history. Other creditors withhold repayment until borrowers deposit funds directly into their banks or a checking account.

Pros and cons of getting a credit

As previously stated, obtaining credit has both advantages and disadvantages. If you want to get credit, you should think about the pros and cons listed below.

Pros

  • Because you receive it all at once, it may be easier to abuse the credit, consolidate arrears, or misuse the total credit.

  • When it comes to credit, you have options. You can choose the type of credit you want and the lender from which you wish to obtain it.

  • You may be able to negotiate a repayment holiday at the beginning of the total credit term, which would limit your interest payments to a set period while freezing capital repayments.

Cons

  • You may become indebted if your finances are not carefully managed.

  • You may be rejected a credit if you do not have a strong credit history.

  • If your clients do not pay you on time for business credit, you will find it challenging to make your monthly repayments, affecting your cash flow.

  • Credits may occasionally be backed by your personal property, such as your home or company's assets. While secured loans have lower interest rates than unsecured ones, you risk losing your property if you cannot make payments.

  • Some credits may require additional time before payments are completed.

Legal regulation of the credit market in the Philippines

The Securities and Exchange Commission (SEC), the Lending Company Regulation Act (R.A. No. 9474), the Bangko Sentral ng Pilipinas (BSP), and other lending legislation govern credit and loans.

Other credit regulations address the allowable interest rates offered to borrowers by financial institutions and annual loan limits. These regulations help to keep lenders from charging exorbitant fees or usurious interest rates.

The actual cost of a credit

The actual cost of credit in the Philippines is determined by the lender and the type of credit sought. These costs are possible: application fees, interest rates, annual, default, processing, disbursement, and early payment fees.

Conclusion

Because of the global economy, it might be challenging to survive without credit. You might not be able to make significant purchases like a home or a college degree and get the benefits of the potential wealth-building that results without the ability to borrow and without a good credit history. Credit also enables a company to meet its financial obligations. Credit, however, is not the solution to all of your financial issues; in order to improve rather than jeopardize your financial future, you must borrow prudently. The correct proportion of debt and equity components should be included.