Deciding to Apply for a Loan? This Might Help
It’s no doubt that Filipinos are known to be hardworking individuals worldwide. Numerous Pinoys work abroad, endure long hours in the office, juggle two or more jobs just to provide for their families. Although hard work will eventually pay-off, sometimes it is simply not enough with tuition fee hikes, medical emergencies, and housing expenses – just to name a few. This is the reason why more Filipinos are turning to loans for financial aid. But before you go applying for one, it is important to know the types of loans available in the market and find out which one matches your need the most. Let’s go through them below:
A secured loan requires the borrower to pledge his property such as car, house, stocks etc. to serve as a collateral or security to guarantee repayment. The finance company or bank will hold the deed or title until the loan has been paid in full, including interest and all applicable fees.
This type of loan is usually the best way to gain large amount of money with lower interest rate, higher borrowing limits and longer repayment terms than unsecured loans because of the pledging of collateral. However, failure to make timely payments could result into losing your collateral or security.
Types of Secured Loans
Pretty much everybody’s end goal is to be a homeowner someday. Unfortunately, owning a house can be a huge financial burden. Getting a housing loan would be your best bet to make your dream home a reality. When applying for a housing loan, banks usually have their basic eligibility and document application requirements. The usual questions that your bank or lender will ask include your assets, monthly income (or combined monthly income in the case of married couples), liabilities, and your projected down payment. If the requirements are met, you’ll then be asked to fill up an application form which is ready for download in your bank’s respective website as well. Upon submission and review, a loan account officer will immediately contact you for further instructions and loans can be approved in as fast as five banking days.
Affordable Alternative: Most Filipinos opt to apply to the Home Development Mutual Fund, most popularly known as Pag-IBIG for a housing loan. They offer two types:
- Affordable Housing Program for minimum wage earners or those whose gross monthly income does not exceed P17,500. Borrowers may loan up to P750,000, with interest rates of 4.5% or 6.5% in the first ten years of the loan, depending on the gross monthly income of the borrower
- End-user financing program caters to those who want to loan up to six million peso. The annual interest rate depends on the fixing period chosen by the borrower.
Auto loan is one of the most sought after financial products in the market right now. Owning a car has become a necessity in the Philippines due to the deteriorating public transportation system and heavy traffic around the metro. Be it a used or brand new car, auto loan gives the opportunity for Filipino families, especially the growing middle class, the chance to purchase their own car.
There are four ways you can apply for a car loan:
- Purchase a new or used vehicle through bank financing and paying it back for a specific period of time, which is usually in equal monthly amortization of principal and interest.
- Get cash loan by using your existing car as collateral.
- Reimburse the cost of a brand new vehicle within 30 days from purchase.
- Refinance an existing auto loan
Documents showing proof of income and identification are primary requirements for getting a car loan. An ITR (Income Tax Return) and Government issued ID’s are for citizens, while resident foreigners need to show documents or proof of residency and income. For eligibility purposes, 30% of your income should cover the monthly repayments of all debt, may it be a house, personal or car loan.
For years, pawnshops have played an important role in the country. Many Filipinos, especially the unbanked ones, has found pawning the easiest and quickest way to solve their urgent need for a small amount of cash. Compared to banks and other financial institutions, pawnshops do not require many documents (income tax refund, pay slips, certificate of employment etc.) before releasing cash to customers. Furthermore, pawning has become increasingly accessible to secluded communities where banking is not available.
The amount you can loan is based on the value of the collateral to be pawned. In the traditional pawnshops, 3%-5% interest rate is added to jewelries or precious stones while 20% interest rate is added to gadgets. Fortunately, Tambunting Online offers only 3% interest rate to all collaterals and accepts a wide range of items from designer shoes and bags, luxury watches, gadgets, jewelries, cars and motorbikes. Tambunting Online also enables individuals to settle their financial needs privately within the comfort of their home through its online division. Click hereto learn more how you to get cash within 24 hours.
An unsecured loan does not require the borrower to provide security to get the loan. Lenders shoulder more risk with no property or assets to recover in case of default which is why the interest rates are considerably higher to recover their money as quickly as possible.
Types of Unsecured Loans
Often called “plastic money”, credit cards allow users to make purchases, take cash advances, and transfer balances from other accounts. Once approved of a credit card, users are given a line of credit which refers to the maximum balance they can accumulate on the card. The money you owe on a credit card is subject to an annual percentage rate that’s called a finance charge. Each card company has different terms that vary depending on the type of card, your credit score, and the type of transaction you make using the card. If you are planning to use a credit card make sure to clear out your debt before the months ends to avoid pile-up.
This type of loan comes from non-financial business where borrowers obtain money to cover urgent expenses and pay it back on the next pay check. This sounds convenient however; they usually come with a high interest rate and transaction fee. When applying for a payday loan, individuals are usually required to verify their employment status and bank statement. The amount may be automatically deducted from your bank account on your payday.
Unlike a housing or car loan, a personal loan can be used for any type of personal expense such as family vacation, home repairs, tuition fees etc. Although there are two types of personal loans which are secured and unsecured, the latter is more common in the Philippines. Once a borrower takes out a personal loan, they enter into an agreement with a lender to repay the loan over an agreed period of time.
Repayment terms are done monthly until the borrower repaid both principal and loan interest. During the early years of the loan, the majority of monthly payments will be used to repay interest, however, as time passes, a larger proportion of your payments will go into paying down the principal.
Always keep in mind that before deciding which loan to take, consider first your needs and your capacity to pay. Make sure to compare interest rates and go for the ones that offer the best option. Was this article of help to you? We would love to hear from you! Comment your insights down below.