Bank Loans of June 2023

Whether a student, a parent, a regular income worker, or even a company owner, you must know that large sums of money are tough to come by. Saving is even more difficult as the expenses of everyday necessities — whether in the university, at the home, job, or in business — continue to rise. Whatever amount of cash you have accumulated on your own, you might not be able to allocate much of it toward large expenditures for business or personal costs.

Bank loans might be your best option when you are short on cash owing to an unforeseen emergency or need extra cash to buy something significant. There are many different forms of loans available in the Philippines based on their intended use, but bank loans remain a primary source of capital for enterprises and personal uses.

Personal loans are among the most frequent types of financing. They are often offered over a specific time and are a quick and easy approach to getting essential financing. Bank loans can be capital or principal repayment or interest-only, and they can be designed to fit the requirements of individuals and businesses. Depending on the objective of the loan, bank loans can be short- or long-term.

What is a Bank Loan?

A bank loan refers to a certain sum of money the bank lends to customers for a certain period. Bank personal loans are often supplied at a fee, typically interest on the amount owing. Other charges and fees may apply based on the loan type and the bank.

Agreement fees are pledges or administrative fees paid to the bank to reserve cash and cover opening costs. Fees will vary based on the loan's complexity, size, and risk. Interest is levied, and the amount varies based on the risk of default. Fixed and variable interest rates are the most frequent.

Insurance, particularly crucial person insurance, might be required as a condition of the credit application. The levels and costs of this insurance vary, depending on the covered person's health history. Since the lender's risk is reduced, better rates are typically received whenever the bank loan is secured. The borrower's security might be assets, guarantees or security, or third-party assurances or security.

Major Types of Bank Loans

Top Philippine banking organizations now provide the following bank loans to Filipinos:

1. Payroll Advances. Banks provide these loans to workers of businesses with a deposit agreement with the bank. The employee's pay serves as collateral or protection for the loan, which the bank subsequently advances.
2. Credit Card Cash Advances. If you want to borrow money, another borrowing alternative is a credit card cash advance. This is a lending option within your credit limit, which implies the minimum amount of cash you may borrow that is determined by the type of credit card you have. It also depends on your income. However, because no collateral is involved, the interest rates for this lending choice are often higher than those for conventional loans.
   It is also crucial to understand that even if the interest rate is lower than other loans, the costs connected with cash advances are generally more significant, so ensure that you read all terms before entering into one. People sometimes get into difficulties with this type of debt by simply spending more than they have in their bank account or using credit cards too frequently without first exploring other possibilities - so be cautious.
3. Personal Loans. Personal loans, the most frequent bank loans in the Philippines, can be utilized for almost any purpose, from business investments to hospital costs and vacation expenditures. Banks and credit unions both provide personal loans. Banks usually offer higher loan rates than credit unions but often need a more significant down payment on your property or other collateral. Credit unions typically offer lower interest rates and need smaller down payments. Still, they sometimes have fewer flexible payment terms and limitations on how much cash you may borrow at once as your personal loan.
4. Home Loans. A home loan, as compared to personal loans, may be used to pay off a current mortgage, construct a new home, repair an existing one, reimburse the borrower for the acquisition of a property, or buy land. Borrowed money might also be utilized for personal reasons. Furthermore, it is a good alternative if you want to buy your ideal property but cannot ultimately afford to pay for it. Acquiring the home you've always wanted may be made considerably more accessible with the help of a mortgage.
   Banks offer house loans that benefit the borrowers. They provide cheap rates and flexible payment terms that are affordable. They also offer home renovation loans to people who currently own a home and wish to develop or repair it to fit their personality or needs better. Consider the size of your property and the projected expenditures before applying for a home building or remodeling loan. Banks have varied terms and conditions, so read them carefully to determine whether they fit your budget. Check the interest rates also; some institutions provide low monthly payments but need longer payback terms.
5. Auto Loans. This loan allows the borrower to purchase a new dream car, a second-hand vehicle, or refinance an existing vehicle. Car loan programs usually garner the most applications among personal bank loans since many Filipinos want to purchase their automobiles to avoid commuters' traffic difficulties in several Philippine cities. The down payment, the kind of automobile, and the amount of time included in the affordable payment terms all influence how much money a borrower must earmark for car amortization.

How to apply for a bank loan in the Philippines?

There are several reasons to obtain a loan, particularly bank loans, such as an unexpected medical cost or an essential automobile repair. If you've concluded that a personal loan is the best option, you should start the loan proceeds with the loan application process.

Calculate the figures

The last thing you or a bank wants is for you to take out a loan and then find yourself unable to repay it. While the bank will typically perform due diligence to ensure you can repay the loan, it is prudent to run your figures to ensure it will work out. Begin by calculating how much cash you'll require, bearing in mind that some banks impose an origination fee deducted from your loan profits. Make sure you borrow enough to cover your expenses after the cost.

To determine your monthly payment, use a loan calculator. This can be tricky if you don't know what rates and payback periods lenders will provide, but you can experiment with the figures to get an idea of how much the loan will cost you and determine whether your budget can manage it. To make matters even more accessible, several banks feature it on their websites and make it simple to use.

Examine your credit score

Most banks will do a credit check to verify your ability to repay your loan. While some banks have begun to look at other innovative financial data, your credit score is still customarily used. The best loans typically demand at least acceptable credit, usually around 580 and 669. However, credit scores over 670 will offer you the best chance of being accepted with a reasonable interest rate.

You may check your credit score using the credit report at the CIC office in Legaspi Village, Makati City, Philippines. Every 12 months, it will send you a free copy of the information across all the credit agencies. Examine the report to check whether there are any inaccuracies. If you notice any errors, please, inform them so that they can be fixed. If your credit score is low due to other factors, you may still be able to obtain a loan. However, the interest fees and rates could be too high to make it worthwhile, so work on improving your credit before applying.

Think about your possibilities

You may require a co-signer to obtain a bank loan with a reasonable interest rate based on your creditworthiness. If you cannot find a co-signer or the banks you are considering do not allow one, you may be able to obtain a secured rather than an unsecured loan. For better terms, secured loans need collateral, such as a car, a house, or cash in a bank account or deposit certificate. If you do not return the loan, the bank has the right to confiscate the collateral to cover the obligation.

You'll also need to consider the best bank to receive a loan from. If you have terrible credit, you may have difficulty being authorized by traditional banks. On the other hand, some 21st-century, digital-based banks specialize in dealing with bad-credit customers, while others offer short-term loans that function as low-cost options to payday loans. If you don't meet the standards and your purchase can wait, work on improving your credit rating to be eligible.

Select your loan type

Determine which form of loan is ideal for your case once you know where your rating stands and have explored your possibilities. While some banks allow you to spend the cash in any way you choose, others may only grant loan applications if the funds will be used for specific objectives. For example, one bank may permit you to borrow money to support your small business, while another may not allow you to use the money you borrowed for business for another purpose. It's typically a good idea to select a bank willing to lend you money for the specific purpose you require.

Look around to find the lowest interest rates

Instead of accepting the first offer you receive, take your time and search around for the most significant potential interest rate. Compare different banks and loan options to see what you are eligible for. Personal loan options are generally available from practically all banks. Consider checking with your bank first if you've had an account there for a long time. Often, demonstrating that you've made good financial decisions for years means the bank might well be ready to overlook recent credit blunders or offer you a better deal.

Choose a bank and apply

After researching, choose the bank with the most outstanding deal for your needs and begin the application procedure. You may be able to complete the entire application procedure online, depending on the bank. Alternatively, some banks may need you to apply in person at a bank location near you.

Provide all essential paperwork

Each bank is different whenever it concerns what you must apply for. After you complete your application, the bank will most likely request more paperwork. You may be required to upload or email a copy of your most recent pay slip, a copy of your driver's license, or proof of address. The bank will notify you of any extra supporting documents required and explain how you should send them to the appropriate person. The sooner you supply the information, the faster you will receive a decision.

Receive the loan and begin payments

You must finish the loan documentation and accept the conditions when the bank says you have been accepted. Once you've completed this, you'll typically get the loan cash within a week — however, some more digitally based banks may send it to you within one or two working days. Once you've been notified about your loan approval, start constantly monitoring when your installments are due and think about setting up automated payments from your bank account. Some banks even provide interest rate savings if you set up auto-payments on your account.

Bank loan requirements

The criteria for a bank loan in the Philippines vary depending on various factors, including the bank and the type of loan sought, but the main requirements are outlined below.

Documentary requirements

• Completed and signed loan application form.

• For employed applicants:

  • One government-issued photo ID from any of the Filipino government agencies

  • Income documentation

  • Audited financial statement

• For self-employed applicants:

  • One government-issued photo ID

  • Audited financial statements from the previous year

  • Registration with the Securities and Exchange Commission or a DTI certificate

  • Permit for business or permit from the mayor

  • Bank financial statements over the last three months

  • The most recent GIS (if a corporation)

  • Latest ITR

Eligibility requirements

• An applicant must be at least 21 years old as of the date of application but no more than 65 years old at the time of loan maturity.

• An applicant must be a Filipino citizen.

• An applicant must have a residence landline and a mobile number.

• Employed applicants must have a minimum gross monthly income of ₱15,000 for Metro Manila and ₱12,000 for locations outside of Metro Manila.

• Self-employed ones must have at least two years of continuous successful operation in the same business area.

How to repay a bank loan?

There are several ways to repay a bank loan; the client has the last say on which one to select. It might be a cash payment, a payment through a partner, a payment made online through the bank's app or website, and so on. Here's how to repay a bank loan.

• Automatic debit arrangement. To set up automatic debit direct payment with a bank, you provide the bank with your bank account or debit card details and give them advance authorization (executive order) to withdraw cash from the bank account regularly electronically, typically at regular intervals such as once a month.
• Partners. To repay a loan through a partner, go to the partner's shop, website, or mobile app, choose your preferred repayment amount, provide all necessary data, and then pay. The loan payment will be shown on your loan as soon as the bank receives it.
• Website or App. To pay via the bank's app or website, browse the payment screen, provide all the required information, and then pay. The bank will typically receive and confirm your payment promptly.
• Over the counter. This is the most straightforward and conventional method of repaying a loan; walk into a bank and ask for a loan payment slip, fill it out, and deliver it to the tellers; your loan balance will be updated as quickly as feasible.

Pros and cons of a bank loan

Below are some pros and cons of bank loans.

Pros

• Low-interest rates. Bank personal loans often offer the lowest interest rates. The interest rates you pay will be lower than those of other forms of high-interest loans, such as internet loans. They have much lower interest rates than credit cards or overdrafts.
• Flexibility. If you get a bank loan, they will not give you a list of regulations that dictate how you spend the funds. While some lenders may limit what you do with the funds, bank loans may allow you to spend it in any way you see appropriate. You can utilize the funds from a bank loan to buy new equipment, enter a brand-new market, or implement a new marketing strategy.

Cons

• Profitability requirement. Unlike online lenders, banks will not risk investing in enterprises that have not yet proven lucrative in the case of business loans. To be qualified, your business must be continuously profitable, ruling out most startups.
• Collateral. Irrespective of your income or credit score, banks will require some collateral. Banks must safeguard themselves if you fail to make your payments.

Legal regulation of bank loans in the Philippines

According to the Philippines' Lending Company Regulation Act of 2007 and the Bangko Sentral ng Pilipinas, a bank may offer loans in quantities and with the permissible interest rates and fees that the bank and the debtor agree on. As the Securities and Exchange Commission requires, all loan applications must include basic terms outlining each party's legal duties. Clear communication is essential on the loan's collateral, interest rate, repayment schedule, and security.

To be considered legitimate, the agreement must be governed by both the Truth in Lending Act, Republic Act No. 3765, and the Consumer Act of the Philippines, Republic Act 7394. In collaboration with the Securities and Exchange Commission and the lending industry, the financial board of the Bangko Sentral ng Pilipinas BSP may set an interest rate if the legal, social, and economic situation warrants it.

The actual cost of a bank loan

Most borrowers pay attention to the interest rate since it is the most crucial aspect in deciding how much they will pay. Unfortunately, they usually ignore many other factors that influence how much your loan will eventually cost. In addition to the assessed value, the borrower must budget for extra expenses like taxes and insurance, typically included in both the monthly loan payment and the loan costs.

Application costs, appraisal fees, title insurance fees, loan application fees, and other fees for collateral examinations and submitting legal income paperwork are expected increases to the minimum loan amount. However, some banks may raise their fees to make more revenue, mainly if they initially gave an extremely low loan maturity rate.

Conclusion

Bank loans are a fundamental component of the financial sector. Banks may offer capital for economic activity while being rewarded for their risk by lending money at interest. Lending money is a vital component of the contemporary economy, from small personal loans to billion-peso corporate loans.