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Loans of May 2022 in Philippines

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Interest rates on loans in 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.

Interest rates on loans in Philippines

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Loans of May 2022

What is a loan in the Philippines?

A loan is usually a sum of money that an individual borrows for various reasons and repays with an interest after a specified period. Borrowers can access different loan products in the Philippines from banks and other financial institutions and pay back later.

There is a growing number of lending and financing companies operating in the Philippines currently. These lenders serve the increasing needs of customers to access loan proceeds simply and quickly. The loan amount that customers can request from most lenders depends on how much borrowers need and repayment terms. Today, borrowers have greater access to lending alternatives, provided that they make sure that the loan is repaid on time depending on the loan agreement.

Borrowers often prefer cheaper loans that can be approved quickly, hence they usually go for short-term loans with flexible payment alternatives. Besides, borrowers in the Philippines avoid loans with high-interest rates. The shift to innovative lending platforms such as mobile loan apps has made it easier for borrowers to access quick loans in the Philippines. They can also get a higher loan when they make payments as agreed upon by the lender while also avoiding late payment fees. Most innovative loan platforms in the Philippines can offer you a new loan regardless of your credit history.

What are the major types of loans?

There are many types of loans that you can choose from when seeking financial help from a bank or other financial institutions.

Personal loans

The most common type of a loan is a personal loan, which is given to individuals. Personal loan lenders are usually banks or credit unions. Individuals can access these loans easily because the loan approval process is usually quick. Taking a personal loan can help you meet your short-term financial needs. Besides, personal loans can be unsecured, which means that you are not putting up any type of collateral, such as your home or other properties, as security in the event that you default on your loan. Personal loans can also be secured. A secured loan is an agreement between the lender and the borrower, in which the lender agrees to lend money to the borrower, and the borrower agrees to pay back the loan with an interest. Secured loans give both the borrower and lender confidence that the loan is safe and that the borrower will be able to repay the loan in full.

Taking personal loans is helpful to those who are in need of money for a short time. It is also beneficial to those who have a good credit score and are able to pay back the loan on time. Another advantage of taking a personal loan is that you can get the loan amount you need without having to wait long for the bank to approve the loan. However, personal loans are sometimes expensive because of the high-interest rates. If you have a good credit score, you may get a personal loan with a lower interest rate and affordable payment terms. Some common types of personal loans in the Philippines are payday and credit card loans.

Payday loans

A payday loan is a type of short-term financing mostly offered to salaried individuals. A lender requires the borrower to promise payback on their next payday and often uses postdated checks or automatic bank transfer as repayment. One advantage of a payday loan is that you can get the cash within a short period of time, usually a week or two, and then pay it back when you get your next paycheck.

Credit card loan

A credit card loan is a loan that is secured by a credit card. The card is used as collateral for the loan, and the borrower is required to make regular payments to the lender. The credit card loan allows you to purchase different items and services from a variety of retailers, and you may make a monthly payment for these purchases using your credit card. You may also use it for monthly installment purchases with durations ranging from three to forty-eight months. To be on the safe side, however, remember that missed payments will result in excessive interest rates as well as fees.

Business loan

A business loan is used to finance business operations. In most cases, a corporation can seek this loan product to finance the purchase of equipment, inventory, or other business assets because of the low interest set by the lender. The borrower is usually required to pay a regular installment, usually monthly payments.

Home equity loan

A home equity loan is a consumer loan that allows you to borrow money against the equity in your home. The amount you can borrow is based on the value of your home and the amount of equity you have in your property.

Auto loans

Auto loans are mostly secured loans that allow an individual to use the lender's car until the borrower can make full payments of the loan amount. The lender maintains the rights to the vehicle as collateral until you pay off the full amount of the loan. Defaulting on the loan can lead to your lender taking away the car, and you may forfeit your previous payments.

Mortgage loans

Owning a home is a dream for many Filipinos. A mortgage loan in the Philippines allows you to acquire your own house with scheduled monthly installments. Like other types of loans, a mortgage specifies the loan proceeds to get, the interest rate, collateral, and terms of the loan, among other agreements. For a mortgage, the guarantee is the house. However, your lender claims the house if you fail to make payments as per the agreement.

Student loans

A student loan is the amount of money a student borrows from a public or private entity to fund their education. There are many student loans in the Philippines. They include the following:

CHED Unified Student Financial Assistance System for Tertiary Education (UniFAST) Student Loan Program

CHED offers short-term loans that students can repay within a year to support their education. The maximum loan amount that you can access is ₱60,000 at no interest (0%) if you pay back the loan within the agreed time. However, if the loan is not paid within the stipulated time, it might attract an interest of 6% or the prevailing rate in the Philippine Dealing System.

Government Service Insurance System (GSIS) Educational Loan

GSIS provides students with a "Study Now, Pay Later" option. The program finances the educational expenses of GSIS members' kin upon nomination to the program. To be eligible for a GSIS program, a student must be related to the nominating GSIS member-borrower and show proof of pursuing a four or five-year program in a private or public educational institution. The maximum loan amount is ₱100,000 per academic year with an interest rate of 8% per year. The loan is payable for 10 years.

Social Security System (SSS) Educational Assistance Loan Program (EALP)

An SSS loan helps SSS members to finance their student beneficiaries' educational expenses, especially those unable to meet their cover educational expenses. A student can only access SSS loans if any of the parents is an SSS member-borrower and can prove to have no full-tuition scholarship. The student must also be enrolled in a government-recognized institution in the Philippines. The maximum SSS loan amount a member-borrower can access for their children is ₱20,000 per term. The National Government funds 50% of the loan, attracting 0% interest rate, while the SSS funds the remaining 50%, charging a 6% interest per annum on a diminishing principal balance.

Students can access various loan facilities to further their studies depending on the loan amount and time they can repay. You can get student loans repayable within one year (such as CHED UniFAST), within five years (such as SSS Educational Assistance Loan Program), or within ten years (such as GSIS Education Loan). Most student loans have no or lower interest rates to encourage students to learn. The loans can be paid after the students are done with their education.

How to apply for a loan?

Loan application is usually a simple and straightforward process. The following steps can help you through the loan application process depending on different loan types:

Loan pre-qualification

Before you borrow a loan, you should prepare a list of documents and requirements needed to submit during the application. Most lenders will require documents to prove identity, income, and address, and others might require other documents such as proof of your monthly expenses and a credit history to approve your loan.

Loan application

After preparing the required documents, you can proceed to the lenders’ loaning platform (usually a mobile app or website) and apply for your selected loan. Most lenders have an almost similar loan application process. Ensure that you upload all required documents, including scanned copies of your ID, proof of address, and proof of income where necessary. You can also check the maximum amount you can apply for, interest charged, processing fee, and whether you will need additional documents to have your loan approved.

Loan application in the Philippines varies depending on whether you are taking an online or bank loan. For an online loan, go to your selected loan provider’s mobile application or website.

  • Open the mobile application or website page of the lender

  • Click or tap Apply Loan

  • Provide the necessary information, such as your personal details

  • Attach the required documents

  • Wait for your loan application to be reviewed by the lender.

For a bank or credit union loan, you should visit the lender first.

  • Fill out the application form

  • Scan copies of your documents and attach them to your application form

  • Present your application form to the relevant personnel.

  • Wait for confirmation from the bank or credit union

What are the main requirements for getting a loan?

To apply for a loan, banks and financial institutions will have different requirements. To be eligible for a loan, you must be:

  • Between 18 and 68 years old

  • Filipino

Other most common loan application requirements include the following:

  • A loan application form, which you can complete online or from the lenders' provided platform(s).

  • A valid ID - such as a government-issued ID, passport, SSS ID, driver's license, voter's ID, or PRC.

  • Proof of income - you must prove that you have been receiving a regular income from employment (formal, informal, or self-employment).

  • Proof of address - different loan types will require proof of address or residency. Some documents to prove your address include a water bill, Barangay certificate, electricity bill, and UMID, among other documents.

Ways to get loans

To get a loan in the Philippines, you must meet the requirements by different lenders. Generally, a personal loan in the Philippines is only available to those who are at least 21 years old and have a permanent address in the country. In addition, you must fulfill the bank's minimum income criterion in order for the bank to assess your ability to repay the loan. Some lenders require additional documents, such as a credit card history for at least six months, before they can consider you.

How to repay a loan debt

After borrowing from a bank or a financial institution, borrowers can make repayments through many options. The common repayment options are usually available in the lender's mobile app. Lenders' apps have simple interfaces that borrowers can use to pay back their loans. For online loans, you can use the simple process of repayment and make direct repayment or installments before the due date. Other financing institutions like banks might require borrowers to make scheduled monthly payments through their bank accounts, which involves visiting bank branches and making direct deposits.

Pros and cons of taking a loan

You may wish to explore various types of loans depending with your needs, whether for home upgrades, funding a wedding, or even consolidating high-interest debt. When used correctly, a loan may help you bridge a gap in your financial situation without putting your assets at risk.

Loan rates are determined by your credit score, income, and debt-to-income ratio. Loans are not appropriate for everyone, though. Before making a choice on a loan, think about the advantages and disadvantages of doing so.

Pros of taking a loan

  • Flexible repayment
  • Can help you when in dire need of finances
  • You can choose from plenty of loan durations
  • Easier to manage

Cons of taking a loan

  • Interest rates can get higher
  • Fees and penalties for late payments
  • Can increase debt

Legal regulation of the loans market in the Philippines

Lending operations in the Philippines are governed by the Securities and Exchange Commission (SEC). Under the Lending Company Regulation Act (R.A. No. 9474), a stock corporation that has been formally registered and licensed by the Securities and Exchange Commission ("SEC" or "Commission") may actively involve in or enter into the business of lending activities in the Philippines. The BSP, which is the Philippines central bank acting through its Monetary Board, is mandated by law to ensure that domestic banks, which are at least majority-owned by Filipinos, control at least 60% of the resource. For the sake of achieving this aim, the BSP functions via its Monetary Board.

There are three main pieces of domestic legislation that apply to corporate lending and secured financing: Republic Act No. 386 (the Civil Code), Act No. 3135 (An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages), and Republic Act No. 11057 (the Personal Property Security Act (PPSA)). The Civil Code is the primary piece of domestic legislation that applies to corporate lending and secured financing.

Other legal regulations of the loans market include allowable interest rates that financial institutions can charge borrowers. Under the Usury Law, the present rate of legal interest rate in lending in the Philippines is 6% per annum.

The real cost of a loan

Legitimate lenders provide borrowers with a viable alternative to financing. Most loan providers offer convenient application and easy approval processes. The majority of legitimate lenders even disburse loan revenues within 24 hours. The easy process of loan applications can enable you to apply for a loan at any time of the day or night. Nowadays, online loans have become more convenient and simpler to access. Simply download the lender's app or go to the their website to begin the loan application procedure. Because of the availability of financial assistance, online loans have become a wonderful option for individuals who really want money for an emergency. However, bank and credit loans, among other offline loans, are still stringent in terms of eligibility, which make them difficult to access most of the time. Moreover, bank and credit union loans attract higher interest rates and involve long application processes. Other than the basic eligibility and documentation requirements, bank and credit union loans often require borrowers to have a collateral when applying for a loan. Whether quick loans, online loans, or offline loans, one common feature of all of them is that you have to pay back with an interest on top of the principal amount borrowed.

However, the true cost of loans may exceed their advantages. For example, online loans are more costly than conventional personal loans because of the quick and easy approval. However, you can have a higher loan limit when you take a bank loan compared to an online loan. Remember that online loans are unsecured loans with no need for collateral or guarantors. They are simply supported by your creditworthiness. If you do not pay on time, the high-interest rates and financing charges might have a negative impact on your budget. Furthermore, most short-term loans are due in 30 days. You may choose a longer loan period but anticipate higher financing costs and interest rates. You also run the risk of losing money to con artists. Because online loans are conducted without face-to-face encounters, you may be dealing with a fraudster rather than a lender's authorized agent. Scammers may steal your identity by using the information you submit throughout the loan application process.

Borrowers must also consider additional hidden charges when taking loans. For example, an unsecured loan usually has hidden charges such as processing fees and legal or insurance expenses. Therefore, you must check all details before taking a loan. Borrowers can avoid the unpleasant consequences of taking a loan by determining the real cost of any loan by considering the amount of loan, cost of fees, flexibility of repayment, loan terms, the interest charged, and the total amount of loan to be repaid at the end of the repayment period. Doing so will help you make an informed decision concerning any type of financing, whether as an individual or a business, and can save you from unpleasant consequences such as losing collateral when you cannot repay the loan.