The Philippines' financial services sector provides residents with various credit choices, such as personal loans, payday loans, and internet loans. Nonetheless, the salary loan has some of the most attractive terms. Banks offer salary loans to people who work for authorized companies and have an employer's bank account where their paychecks are deposited.
What is a salary loan?
Borrowers can apply for a wage loan and obtain financial help to fulfill necessary costs before their next payment (such as tuition, medical bills, or other emergency expenses). Pay loans are often based on the borrower's gross monthly salary and must be repaid over a certain period. In Metro Manila, this type of loan is quite common.
Salary loans are usually only available with a valid photo ID and evidence of income or billing. They do not demand collateral, unlike pawnshop loans, which often require things such as jewelry and electronics.
Salary loans have higher interest rates, fewer loanable amounts, and a shorter payback duration than personal loans and pawn loans in the Philippines. As opposed to loan sharks, salary loan providers can provide cheaper interest rates and longer payback terms.
An ATM loan is one of the most common ways to receive fast money since it gives you access to cash in an emergency. The ATM salary loan is one of the most appealing forms of the fast loan in the Philippines since it has the lowest interest rate among quick loans since the bank has already recorded your paycheck in the automatic renewal.
What are the types of salary loans?
There is no unique type of salary loan product; instead, they relate to getting modest amounts of money for purposes such as:
- For personal reasons. Salary loans can be a decent alternative for those who are temporarily having difficulty paying their payments, but they should not be used regularly.
- Car maintenance. This is not auto financing: while you should keep your car loan in mind each month, you should also be aware that your car will have other expenses other than diesel and a regular car wash. Unless you are too quick, or if you are unlucky, you may end up with flat tires, an air conditioner that does not cool your automobile sufficiently to keep your head cool, or a dead battery. Remember to renew your accreditation.
- Pharmaceutical emergencies. Health problems can come at the worst possible moment and are difficult to predict. If you don't have enough money, you can receive a loan against your wages to pay for expensive prescriptions or nursing care.
- School expenses. Because education is expensive, not all families can afford to send their children to a decent school, which can cause anxiety. So, if you need more income, you might consider getting a salary loan.
- Quick-acting purchase. In this instance, a salary loan might be an excellent option. For example, you may be a well-paid employee when an item you've coveted for a few months suddenly goes on sale, and you need a thousand pesos to acquire it.
- Wedding expenses. A wedding is one of the most important and expensive events in a person's life. As a result, unexpected costs may be incurred at the worst possible time. You can get a loan for the banquet, food, wedding attire, and honeymoon.
- Home improvements and renovations. You may be striving to better your quality of life, or you could be remodeling your home but have run out of money. With a wage loan, you may still make modifications and remodel your property.
- Utility bills. Utility costs fluctuate, and a company's pricing may rise unexpectedly after you believe you have done all possible to reduce energy waste. If you haven't made a payment, you could find yourself swatting flies at night instead of sleeping with an electric fan, or you might have to inquire with a neighbor to pay for a gallon of water since your water supply has been shut off. A salary loan may be the best solution in this instance.
How to apply for a salary loan?
Borrowers must complete a loan application, which they can do in person or online at the lender's office. The documents prospective candidates require are an employment letter, a recent pay stub, and an account number.
Salary loan amounts can range from ₱1,000 to ₱500,000, depending on the salary loan lender and the borrower's gross monthly income. The extra cash advance is paid in salary loan applicants' accounts within five working days after the bank authorizes the online application.
Steps to apply through a company's website
The borrower must adhere to the lender's requirements, including the online application process for a salary loan. The following are the general stages involved in applying for a salary loan:
- To begin an online application process, visit the lending company's website.
- Before applying, look for a salary loan calculator on the website, input your loan details, and see the maximum loanable amount you can get or if you are qualified. If you are, then proceed to the next step.
- You can navigate to Apply for a Loan, or you might have to navigate to the company's salary loan page and tap on Apply Now.
- For those who do not have an account, you can register an account with the company by providing your email address and choosing a password.
- Give your personal information (e.g., your name, address, date of birth, personal identification, etc.).
- Select if it is a first loan obligation or a subsequent one.
- Choose how much money you wish to borrow. Next, enter the terms of your payments and your gross monthly profit.
- Include information about your employment, such as your employer's name, address, and phone number.
- Then, upload the required files, such as your income tax return, employment letter, and pay stubs.
- Provide your account details.
- Click on Submit, and then wait for the lending company to contact you. When they contact you, it is always to either invite you to their office for the full completion of your loan application or to request more information about you.
Steps to apply through a company's app
Many credit unions provide their users with a specific application they may use to apply for a loan, keep track of all their activities, and make payments. The technique may differ according to the lender you choose. Nevertheless, the typical approach is outlined below:
- Download the lending company's mobile app from the App Store, App Gallery, or Google Play.
- Before applying, look for a salary loan calculator on the application, input your loan details in it, and see the maximum loan amount you can get; if you are eligible, move to the next step.
- For those who do not have an account, you can register an account with the company by providing your email address and choosing a password.
- You can navigate to Apply for a Loan, or you might have to navigate to the company's salary loan page and tap on Apply Now.
- Give your data (like your name, address, date of birth, personal identification, etc.).
- Select if it is a first loan or a subsequent one.
- Choose how much money you wish to borrow. Next, enter the terms of your payments and your gross monthly income.
- Include information about your employment, such as your employer's name, address, and phone number.
- Then, upload the required files, such as your income tax return, employment letter, and pay stubs.
- Provide your account details.
- Tap on Submit, and then wait for the lending company to contact you. When they contact you, it is always to either invite you to their office to complete your loan application, approve, or request additional information about you.
Steps for in-branch salary loan application
It is a better approach to applying for a wage loan, but it comes with certain drawbacks, such as waiting in a long queue. You must go to the corporate branch of the salary loan lender and speak with a customer care representative. Determine your reason for visiting and follow their instructions to apply for a salary loan package.
What are the main requirements for getting a salary loan?
You must fulfill a few eligibility requirements to qualify for a wage loan. Please keep in mind that your selected lender will eventually determine the requirements. However, the following are typical circumstances:
- You must be a working Filipino citizen.
- You must be 21 years old when you apply for the loan and no older than 70 when it matures.
- You must have good credit and be employed.
- You must have a job.
- You must earn at least $1,000 monthly and be involved entirely (the criteria vary based on the lender you choose).
- A recent one-month pay stub, a corporate ID card, and a government-issued ID are required.
How to repay a salary loan debt?
Some salary loan lenders, government organizations (PAG-IBIG, SSS), and other non-bank financing firms (NFBC) in the Philippines offer recurring loans, generally with interest and dependent on the applicants' monthly income or pay.
Before acquiring a salary loan, you must either provide a personal check to the lender or complete an ACH (Automated Clearing House) form, which grants the firm permission to electronically take money from your bank, credit union, or prepaid card account.
Please read your loan agreements carefully to understand how the repayment works. Although you are normally required to show a payback check before receiving a loan, certain salary loan lenders allow you to pay in person when the loan is due.
Following acceptance, the salary loan may be returned using a monthly paycheck, a personal bank account, credit card, or any other method agreed upon by the interested applicant and lender. Payback periods vary by lender; some need 12–36 months of repayment, while others offer borrowers a longer repayment time.
Some lenders enable borrowers to cash the check in full on the due date, and others allow borrowers to extend their funds in return for a heavy penalty. When the borrower is unable to repay the loan, they must contact the lender before or beyond the due date and select the rollover option, which is comparable to re-borrowing. This alternative is possible only if the Consumer Financial Protection Bureau does not block the borrower from receiving a loan during the cooling-off period.
Please keep in mind that if you wish to do a rollover, you must do it before the due date. Furthermore, let's imagine you do not return to your lender. In such instances, because you presumably agreed to its terms and conditions when you took up a salary loan product, they will be required to deposit the check or take the money from your account electronically.
This signifies you've given the lender ACH permission to electronically debit your account on the loan's due date.
This is not the only limitation. Payments can also be made online through partner firms or in person. This is entirely up to the lender.
Pros and cons of salary loans
Salary loans are one of the most common types of short-term loans in the United States. Many people rely on wage loans to meet unexpected expenses. However, before making any judgments, it is best to look for alternatives. Try to restrict the amount of money they can borrow. Because the monthly payment is nearly always deducted from the salaried applicant's pay stub, they should only borrow enough to cover their expenses until their next payday. Before deciding whether or not to continue with a salary loan, it is always vital to examine all of the advantages and downsides.
Pros
- Very few loan requirements. Most salary loan providers ask for less information from you than typical personal loans. Although fewer restrictions make applying for cash easier, keep in mind that extra requirements from banks and other lenders are sometimes imposed to safeguard you.
- Unsecured loans. Salary loans, unlike traditional bank loans, are not secured by personal property, which means that the salary loan lender cannot confiscate your property in the case of failure (i.e. if you do not pay).
- Uses. Salary loan products may be used for a variety of things, such as house upgrades, weddings, emergency medical bills, education, vacations, and so forth.
- Easy process. Salary loans are approved faster than many other loan options. It might take anything from 24 hours to 5 working days from the time the loan application is submitted.
Cons
- Access to your account. To receive wage loans, borrowers must frequently provide the lender with access to their bank account. Direct deposit for bills and loan payments is becoming more prevalent, but this access is unique. When you receive the loan, many salary loan lenders require you to write a post-dated check—in this case, a check to be cashed on each of your paydays—which can be problematic if your bank charges an excess overdraft or bounced cheque fee (also known as insufficient funds) on top of the lender's returned or failed payment dues. If you find yourself in this situation, call your bank right away to explore your alternatives for safeguarding your account.
- You may be sued. In this instance, wage loan lenders may pursue a judgment against you for nonpayment. If a decision is made, you may face garnishment, prison time, or other repercussions.
Legal regulation of salary loans in the Philippines
In the Philippines, there is no interest rate restriction on wage loans. Nonetheless, the Securities and Exchange Commission (SEC) has agreed to limit consumer interest and other costs in order to prevent predatory lending.
After it was discovered that certain corporations had added 2.5 percent to their additional costs, the SEC requested the Bangko Sentral ng Pilipinas (BSP) in an October 2021 statement to impose a maximum interest rate or interest rate ceilings.
Under Section 7 of Republic Act No. 9474, or the Lending Company Regulation Act, these institutions are free to provide loans at the amounts, rates, and charges agreed upon with borrowers. The Monetary Board can also regulate the maximum rate or range of purchase discounts, lease rentals, fees, services, and other costs payable by financing firms under Section 5 of the Financing Company Act (Republic Act No. 8556, the "Financing Company Act").
The Bangko Sentral ng Pilipinas advises lenders to deny credit with monthly payments that surpass 35% of monthly income and may also refuse credit with monthly payments that exceed 28% of monthly profit.
A salary loan cannot be for more than three months' wages each month. However, a longer-term may be possible. If you want to get credit for 5 percent of your salary, the credit length should be at least 16 months with a 15% APR. If you want a salary loan for 10 salaries, the credit duration should be at least 36 months and the APR should be at least 15%.
Lender apps that Google Play prohibits charge annual percentage rates of more than 36%.
The actual cost of a salary loan
A salary loan is an excellent method to obtain the funds you want, but it may not be the ideal solution for everyone. The difficulty is that, unlike a personal loan, a salary loan, like a payday loan, is pricey and only works if you have a decent credit score. If your credit limit is too low, you may be unable to obtain a loan, and even if you can, the interest rate on your loan will be considerably higher than it should be.
Aside from that, extra expenses linked with wage loans can soon pile up. For example, the interest rates on a salary loan vary amongst lenders, so if you select the wrong one, you may wind up paying more than what is indicated on your account. There are also late payment penalties and yearly fees.
As previously indicated, the real cost of a wage loan is primarily determined by the lender. Loanable sums might range from ₱1,000 and ₱1,000,000. The size of the loan is also determined by your total monthly profit. Loan periods might range from weekly to 36 months.
Depending on your desired lender and loan period, the interest rate can be computed daily (daily interest rate), monthly (monthly interest rate), or yearly (annual interest rate). The daily interest rate might fluctuate between 0.001 % and 0.1%. Filipino citizens residing in Metro Manila may face somewhat higher fees.
Loan processing costs in the Philippines range between ₱1,500 and ₱3,000 per loan. Some lenders collect as little as 1% of the salary loan amount as a service fee. For loans over ₱250,000, there is a ₱1.50 stamp tax fee per ₱200. There is also a disbursement cost of between ₱1,500 and ₱2,500, as well as a notarial fee of between ₱125 and ₱150.
For example, if the loan amount is ₱ 50,000 and the borrower chose a bi-weekly payment period (meaning the payment is due every 14 days), let us suppose the interest per day is 0.0571%, with an annual percentage rate (APR) of 20.8415% and a 5-month loan term. The lender loans money to its applicants in accordance with the loan contract, which is valid until December 31, 2020. The borrower can get a loan for an indefinite amount of time, known as the loan term, as long as payments are made every two weeks or as stipulated in the loan contract. The credit user was made aware of their financial obligation if they failed to perform a duty to the financial partner during the verification call, as required by the loan contract. So, in this situation, the principal is ₱50,000.00, and the monthly payment is ₱13,500.00, with a total interest rate of 35.00 %. The total amount payable will be ₱ 67,500.00.
Conclusion
Salary loans may be advantageous, simple, and reasonable when you need money quickly. However, if borrowing is your only alternative, compare many other loans, read the small print, utilize an online loan calculator, and select the one with the lowest interest rate for the loan period you want. You may always call a financial aid for advice and queries, and always choose a lender that is licensed by the Bangko Sentral Ng Pilipinas.
