Life is uncertain; you never know what the universe might be planning for you the next moment. Someone might receive a promotion, whereas the other might be hit with unexpected medical bills or debt. A low-interest personal loan works like a lifeline in challenging times.
What is a personal loan?
A personal loan is a one-time lump sum installment loan given by bankers or moneylenders. The money can be used for any purpose, from debt consolidation to vacation or education, as per borrowers’ convenience or requirement.
Such a loan is an affordable option to provide a safety net to the one in need of a financial boost. The primary reason people prefer personal loans is that this type is issued without any security or collateral.
What are the major types of personal loans?
There are several types of personal loans one can apply for in the Philippines. The most popular ones are the following.
- Installment loans. A borrower can take a personal installment loanwherein they pay back the principal amount with interest to the lender in fixed monthly installments. The period may vary from 12 to 48 months. One of the primary reasons people prefer installment loans is that these loans are flexible, and the money can be used by the borrower in any manner they want. There is no restriction with regard to the usage of the money. The duration of the loan depends on the amount of a loan acquired and the interest charged upon the borrower.
- Consolidation loans. When a borrower has several debts, he or she might go for a debt consolidation loan, wherein he or she manages to consolidate all the debts and loans into a single personal loan that offers better terms. Combining multiple outstanding debts into a single loan reduces the number of payments and interest rates you have to worry about. Often, the interest rate of a consolidated loan is less than all loans paid individually, which might assist in paying off the debt quickly.
- Traveling loans. If you are planning to visit your dream destination but are finding yourself in a tough situation economically, then you can go for a traveling loan and fund the travel expenses. One doesn't have to give any collateral before seeking a travel loan. Also, interest rates in travel loans can be as low as 11%, but this depends on the credit history and eligibility criteria. Traveling personal loans are the best option when a marriage or bachelor's pops out of the blue.
- Medical loans. A borrower can seek a medical loan to pay for the medical treatments or surgeries. The medical loan amount often assists a borrower to manage the expensive hospital and medical bills. One of the best parts about medical loans is that they are easy to apply for, are approved quickly and the disbursal of the amount is swift too. Medical loans often cover surgeries that are left out in health insurance like cosmetic surgery, fertility medical treatments, bariatric procedures, among others.
How to Apply for a Personal Loan?
To apply for a personal loan, the borrower can either visit the branch of the bank or loan company or apply at the website of the lender or bank. The applicant is asked to choose the kind of a loan to apply for, then acquire the form and fill out all the required fields after careful reading.
The applicant will receive a decision by either getting an email or being redirected to another page for confirmation. If there are multiple lenders, it is advised to bunch all the applications, which is called “rate shopping'' wherein multiple inquiries will be treated as one. Once the confirmation is received, upload all the relevant documents like your income statement, personal identification number, etc.
One should carry a copy of all essential documents from income statements to housing costs and social security numbers in hard copy if they are visiting the branch or in scanned documents if the application is processed online. Once the application is approved, the lender will receive a call of approval. Then it is necessary to agree to the terms and conditions; it is advised to thoroughly read the terms of a loan contract and wait for the confirmation either through call or SMS.
What are the main requirements for getting a personal loan?
Below are some requirements to apply for a personal loan based on your occupation.
Employed
For employed professionals, a valid government-issued identification card is necessary. Providing their proof of income is also required; One may carry a certificate of employment, their latest income tax returns, or a salary slip.
Self-employed
Individuals who have their own company or operate a local business under their name can also apply for a loan. Self-employed borrowers are required to present the following valid government-issued documents:
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A valid identification card
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Business registration or a DTS certificate.
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Audited financial statement of the preceding year
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A business permit
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Bank statements for the previous three to five months
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The latest GIS of the company if it’s a corporation.
Foreigners
Foreign nationals living in the Philippines can also file a loan application after checking all the necessary fees and charges. Although giving out loans to foreigners is highly regulated, you might have a chance if you present the following documents.
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Alien registration certificate
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Valid passport
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Valid proof of residency
These are the basic requirements for a loan application, but they may vary for each bank, lender, or lending company.
Ways to get a personal loan
One can apply either by visiting the bank or money lender personally or completing the application process through the lender's mobile application or website. The process will require them to fill in a form, update necessary details, and then wait for the result.
Before applying for a personal loan, one should be aware of how much loan amount will be sufficient for them. Furthermore, They should check their credit score and read the agreement conditions carefully.
How to repay a personal loan debt
Acquiring a loan might be easy, but the borrower should keep in mind the importance of repaying the loan back on time. If the borrower skips their loan repayment, this might adversely affect their credit score and the chances of seeking a loan next time. Furthermore, they can even incur huge penalties for the same.
For repayment, read the acquired document and determine your loan terms, which may vary from 6 to 36 months. Repay the amount in monthly installments from the following repayment options.
Online repayment
As per the selected lender, the user will have multiple repayment options available, like Gcash and other online merchants. To cross-check, the user can head to the lender's official website and check the available options. After verifying, go to your account and complete the repayment via this online vendor.
Over-the-counter repayment
In case you are not able to pay your loan online, you have another option to complete the repayment via over-the-counter payments. Go to the lender’s website and check the available options like 7-eleven stores, BDO centers, and many more. To pay the due amount, visit any of the listed stores and deposit your payment there.
Some lending partners also provide access to loan repayment via external remittance centers. To know more about this, you have to talk with your lending partner or go to their website and read about the supported repayment solutions.
Pros and Cons
A personal loan can be very useful when a person is facing financial constraints. However, it’s important to know all its advantages and disadvantages.
Pros
- Flexibility. There are several loans that can only be used for a specific purpose. For instance, if someone avails a car loan, they can invest that money only in buying a vehicle, but when someone acquires a loan through a loan application, they can use the money in whatever manner they choose. Suppose you are in serious financial trouble and don’t want to lock your money in one compartment. In that case, acquiring a personal loan will be like a safety net in financially challenging times
- Better than credit card loans. The interest rates of personal loans are lower than these of credit card ones. If the borrower has a good credit history, they can qualify for a loan wherein the interest rate can range from 6 to 8% on the loan amount.
- No collateral. If you are applying for an unsecured personal loan, you don’t have to worry about giving collateral to the bank or the company to get the loan approved. However, there is no denying that if you fail to repay the loan amount, you might face some significant financial consequences. On the other hand, your car, home, or asset won’t be mortgaged with the bank or a loan company.
- Easy to manage. It is often observed that many people have several debts from credit cards, banks, or loan companies. A personal loan can assist in consolidating all the debts into a single fixed rated monthly payment, which is easier to manage than paying off several credit card bills or bank loans.
Cons
- High-interest rates. If the borrower has a poor credit history, they might have to pay a higher interest rate than credit card companies on their loan amount. Although there are several benefits of a personal loan, this high-interest rate is a major drawback for borrowers.
- High penalty. A personal loan may come with hefty fees and charges, which might drive up the entire cost of the principal loan amount and interest. For instance, certain banks or loan companies charge pre-payment penalties if the borrower squares off the entire loan amount before their loan term ends. It is suggested to read the terms and conditions finely.
- Debt enhancement. Although the loan amount can assist a person in consolidating all their credit card loans, this does not address the cause of such debt. If one chooses to pay all their credit card debt with a personal loan, they think they are free from all their debt. A personal loan might end in racking up more charges instead of freeing you from the debt entirely.
Legal regulation of the personal loans market in the Philippines
The legal requirement to impose an interest rate in a loan contract is due only if there is an express stipulation for the payment of interest or the agreement for such a payment was reduced in writing. It is essential to write down the interest rate before imposing the same.
The Supreme Court in the Philippines has ruled recently that the imposition of usurious interest rates like 5 to 6 % moneylending is illegal. If the personal loan application contract violates the borrower’s privacy, then the case will fall under the jurisdiction of the National Privacy Commission.
The Real Cost of a Personal Loan
A personal loan is an attractive option if someone needs funds quickly and has a strong credit score. This is one of the safest ways to consolidate and pay off costly credit card debt. However, it is not out of place to mention that if you have a habit of overspending, then such a loan may not make any sense to you.
If you don’t need the money urgently, you might think of saving a big chunk and paying for the large purchase rather than availing a loan and making a monthly payment for a huge term.
Before seeking a personal loan, it is important for the borrower to consider its real cost. One should consider the APR and origination fee or the prepayment charges etc. This will allow getting an estimate of the real cost of acquiring a personal loan.
Origination fees can also be called a commission that is added between 1-5% for lending money. If you want to take ₱5000 as a loan, and the origination fee is 6% then the 6% will be added to ₱ 5000. If you are late in paying off your loan on the due date, the lender or bank might charge you with a hefty penalty or fines.
If you plan to square off the loan early, you might be asked to pay per payment charges. This varies in every bank and loan company. One needs to be aware of the terms of the loan contract to be aware of such conditions
There are several banks that do not add such cryptic conditions, but the borrower should be aware of the same by reading the contract and asking the lender such questions.
Conclusion
Before availing a personal loan, one needs to know why they need the fund, how they will use it, and what will be the channel of repayment of the loan with interest.
One should start with weighing all. Before taking out a loan, it is important to check what the pros and cons of taking out a personal loan are, what the safety net is, or whether there is any other financial option. There’s no harm in reviewing the other alternatives like the home equity loan or a credit card balance transfer.
If you think your best option is to avail a personal loan, don’t forget to get different quotes from several lenders to compare the interest rates and term of the loan. Do not skip reading the fine print of the contract. Finally, don’t shy away from taking second to third opinions on interest rates or repayment procedures before opting for a loan.
