Money can’t buy happiness. But it’s much easier to agree with this statement when you have money. Salaries, compensations, and various bonuses are amazing, but they are always not enough in the most critical situations. Thus, loans and credits enter the game. Today, the majority of Filipino citizens face the need to borrow money. This is to cover daily expenses, large purchases, business investments, etc.
But, there are still a lot of issues with both personal and business loans. How do they work? Are they actually safe? Which loan types exist and which are the best ones? This guide is going to reveal major loan types and categories that are available for residents of the Philippines.
Distinctive Features of Loans
In the first section, we want to look at the key features of loans provided by banks, governmental bodies, and private lenders. These features are similar for all types, so you want to know them before submitting your loan request:
- Fixed amount. Lenders offer from ?1,000 up to ?2 million depending on your eligibility and credit score. But loans always come as lump sums.
- Fixed interest rate. Most of the offerings feature fixed rates from 6% to 36%. This means, they don’t change during the entire repayment term.
- Fixed term. Unlike credit lines, loans have strict schedules so you have to make repayments regularly during the term: from 7 days to 120 months.
Thus, almost all loans in the Philippines are fixed in their terms and conditions. A borrower takes a certain amount for a certain period with a certain interest rate so these parameters don’t change at all. Sometimes, you can find flexible rates or reloan/prolongation options but they are pretty rare.
Main Loan Categories
Now, let’s get closer to the topic. Local people in the Philippines can get various loans depending on their purposes. For example, you can find a really huge offering but it will also come with high interest rates and require collateral. Similarly, it’s easy to get a small short-term loan, e.g. ?2,000 for one week. Finally, there are dozens of different companies that lend money to customers.
It’s not an easy task to choose the best option so we’ve taken the most popular types and divided them into categories. Check them out!
Based on Purpose
This point is simple as it requires that you understand what you need the borrowed money for. Investment? Leisure? Debts? Education? There are multiple variants:
- Auto. To get a new car, you can cooperate with a bank or an automotive dealer. The first option features lower amortization but requires a 20% initial deposit. The second one comes with lower advance payments, but 4-5% higher monthly fees.
- Business. This loan covers various business expenses — starting, expansion, operational, and accidental expenses. Most often, these offerings are provided via banks that tend to work with small and medium-sized businesses (SMBs).
- Home. This financial support is provided for purchasing, repairing or improving your housing facilities. Among all types, this loan features the longest terms up to 20 years. As well, it comes in huge amounts that can be compared to business loans.
- Personal. This type includes educational, travel, medical, and other loans focused on personal or non-commercial expenses. To be eligible for a personal loan, you must have at least one-year working experience.
- Reloan and consolidation. Citizens can also apply for loans to consolidate their debts. Instead of having several ongoing credits, it’s possible to take one loan to repay them. In this case, be sure to calculate everything carefully to get lower rates.
When applying for a loan from banks or governmental firms, you should specify the purpose clearly. On the other hand, private lenders often don’t care about your motivation as they only want to get their money back. But it’s always a good idea to know your purpose because it will help you to not waste funds.
Based on Term
Another classification is centered around different repayment terms. The most popular types are as follows:
- Short-term and payday loans. The term varies between 7 and 30 days, but can go up to 60 days.
- Mid-term loans. The most popular type that sits between 2 months and 1-2 years. These loans are suitable for the majority of purposes.
- Long-term loans. The longest terms may exceed 20 years but the most common upper level is 120 months.
To choose the most suitable option, you should realize the purpose, again. Payday loans are wonderful when you need to cover urgent expenses and are ready to return money after receiving your salary. Mid-term loans work fine for auto and business loans without ambitious strategic goals. For home and big business offerings, you want to choose the long-term type.
Based on Collateral
Collateral is any asset that you put up as security for the lender. In case you fail to repay the loan, the bank or another company will take your collateral. Basically, it’s possible to use any valuable asset like cars, or properties. Thus, this point is simple, too. It includes only two types:
- Secured. Loans that come with obligatory collateral. Once a lender faces lower risks, it offers better conditions for a borrower: higher amounts, longer terms, etc. As a rule, business loans are secured.
- Unsecured. This type doesn’t require providing collateral. Respectively, it comes with less profitable conditions, mainly because of higher interest rates. Most personal loans are unsecured.
Choose secured loans when you’re sure that there will be no problems with repayments. Otherwise, opt for unsecured offers that feature worse conditions but don’t put your valuable assets at risk.
Based on Lender
The last category includes different lending companies that work with Filipino clients. In a nutshell, there are three types:
- Governmental bodies: GSIS, SSS, etc.
- Private companies: Cash Mart, Easycash, Robocash.[1]
- Peer-to-peer networks. Cashwagon, FundKo, Kiva[2] [3] .
Note that there are both private and state-owned banks in the Philippines so choose wisely. Overall, the government provides safe and secure loans, but requires different documents and checks your eligibility carefully. Private lenders feature more favorable requirements but higher interest rates and somewhat lower reliability. P2P lending systems and local microfinance organizations may even ignore credit scores and employment proofs, but you should be cautious with them as there are a lot of fraudsters.
What to Choose?
At the end of the day, you should carefully evaluate your needs and possibilities. Mainly, it all depends on the purpose. For small daily expenses, choose short-term personal loans without collateral. For more significant loans aimed at debt consolidation or business development, you want to get the best rates so opt for trusted lenders that provide long-term loans with acceptable rates.
We don’t recommend dealing with suspicious small private firms as they can steal your sensitive data or ask for the initial fee. All other options are viable as long as they meet your requirements.
