Looking for ways by which you can easily borrow money from banks and buy that latest phone you like? Or have that leaky apartment ceiling fixed? Well, with my 5 years of banking experience, I’ve summed up the FAQs in this “Personal Loans in the Philippines FAQs” Guide. These beyond-your-current-purchasing-capacity needs (or wants) are now within your reach through qualifying to Personal Loans.
1. What are Personal Loans?
Personal loans, like any other loan, means borrowing of money from credible sources who expect to be paid back with interest.
The catch, however, is that almost all personal loans are “unsecured” (not to be mistaken with non-security), which means that there is not a need for collateral in order to apply for the loan.
Unlike mortgage loans where the house in itself is the collateral or auto loans where the car can be repossessed upon payment failure, personal loans don’t have that kind of hassle. But that doesn’t make it any easier to run from, pun intended.
The money received from personal loans can be used for almost anything – anything legal of course. It can range from simply buying that iPhone SE 2020, to financing a start-up business, or even to cover the funeral costs of a loved one. But since no collaterals are needed in applying for this loan, there are things we have to be aware of first and we’ll be discussing them as we proceed.
2. What should I know before applying for Personal Loans in the Philippines?
As mentioned earlier, personal loans do not come with collateral for application, so the bank will be taking the toll on the interest rate. If you plan to apply for a personal loan to buy a car, get an auto loan instead, the car will be at stake if you fail to pay but the payable burden every month would be significantly lower due to the security given by the collateral – in this case, the car.
The specifics of how personal loans work varies from bank to bank. But typically, the general criteria to apply for the loan would include your:
- Name
- Age
- Income
- Contact Information (some banks prefer only clients who have landline numbers)
- Line of work
- Institution/business you’re involved in
- Place of residence
In short, there’s no escaping from them whatsoever.
3. How do Personal Loans in the Philippines work?
Since personal loans are unsecured, the sifting process will rely heavily on your capability to pay. So having a regular, qualifying salary will aid in approving your loan. Aside from that, banks will base their decision on your creditworthiness, whether you have a history of failed credit payments or a clean credit slate, these will affect the bank’s decision in giving you the loan.
If you appear to be sketchy-looking, they also have the liberty to conduct a soft or hard inquiry on you just to be certain. So to be on the good side of the bank’s decision, make sure to fit the income criteria of the bank and/or make sure to have your other credit liabilities attended to, just so your credit score will be acceptable and viable for the approval of your personal loan.
4. How to Calculate Personal Loans Philippines
The method of calculating payment for personal loans varies from how other loans such as mortgages are calculated. The former uses a monthly add-on interest rate while the latter utilizes the simple interest rate method. In a nutshell, it means that the add-on interest rate method is more expensive than that of the simple interest method. This is because no collateral is asked of the loaner in applying for personal loans, that’s why banks will have to guarantee their income through higher interest pay to make-up for costs in case the loan is defaulted.
Personal loans in the Philippines , due to their monthly add-on rates nature, will have a standard fixed payment value every month.
The choice of whether you want to pay for it in a span of a year or even 5 years (12 months to 60 months) will be your prerogative. The computation for personal loan monthly payment is as follows:
- The monthly add-on rate* (set by the bank) will be multiplied to the principal amount (amount loaned) and the no. of months you choose to repay the loan. Here, you will get the interest:
Interest= (principal amount) x (monthly add on rate) x (No. of months)
Let’s say you want to borrow P20,000 for 12 months with a monthly add-on rate of 1.20%:
Interest =P20,000 x 1.20% x 12months
Interest = P2,880
- The principal amount plus interest, will be divided by the number of months you want to pay for the loan.
Monthly payments= (principal amount+interest) / 12 months
=(20,000+2,880) / 12
Monthly Payments =P1,906.67
**Do take note of additional fees and fines though.
Voila, easy math for everyone. Took me a short time to figure this out.
5. Can Personal Loans Be Transferred to Other Persons?
Essentially, personal loans are non-transferable to other people because, first: the name suggests so, right? Secondly, these personal loans in the Philippines rely on your creditworthiness, so the inability to pay will reflect heavily on your personal credit scores, thus, applying for other credit-based financial assistance will be even more difficult on your part.
In events like financial incapacity to pay loans, the loaner may opt to have a cosigner or a guarantor pre-loan application. This doesn’t necessarily pass the burden of the monthly dues, however, if the loaner defaults on the contract, the bank will have to pursue the cosigner or guarantor for the remaining liabilities left.
6. What happens if you don’t pay your loans?
Many times have I encountered teleserye scenes where debtors are threatened to be locked up in jail if unable to satisfy their debts, but according to Article III, Section 20 of the 1987 Constitution,
“No person shall be imprisoned for debt or non-payment of a poll tax” which means that no imprisonment or detainment form of sanction can be given to those who fail to meet the dues of their loans.
Now isn’t that an easy route to just borrow a ton of money and run away? In the words of the infamous Pinoy drama “sapakan” scenes shown in every teleserye at 10:00 pm, “ang kapal naman ng mukha mo.”
In these scenarios, banks will sell your disqualified loans for a fraction of the principal amount to collection agencies, and they shall do the dirty work on how to make you pay. Of course, dirty works within your legal rights. Beyond that, you can file legal action. But still, be responsible.
If you have a cosigner or guarantor, they receive the full impact of your irresponsibility and become liable for the debts they didn’t ask for. Don’t expect them to give any pamasko to your kids anymore, or even attend your birthday celebrations.
What can also happen is that these banks will have your name blacklisted and thrown in a file cabinet shared by all banks. Now future transactions with other money-lending entities involving money or credit is no longer a privilege given to you. The same can possibly happen when applying for credit cards. I’ve written more about it in a separate post where I answer all your Credit Card Frequently Asked Questions:
7. Other than Banks, where else can I get a loan?
You may opt to apply for a RFC LOAN. The company, Radiowealth Finance Corporation (RFC), has been working to provide financial access to every Filipino for the past 5 years.
8. How Can I Receive a Loan Quickly?
Nothing ever gets approved in a flash, but every smooth transaction happens when you begin proactively. Want to find and compare banks that can cater to your loan amount on just one website? To make things easier for you, you can compare the interest rates across all banks on GoBear’s website and find the right loan that suits your needs.
Click on this link and let GoBear help you find the perfect Personal Loan for you.
Final Thoughts from The Thrifty Pinay
If you have pending liabilities with other banks, make sure to settle it first to avoid possible problems in your application. Select the bank of your choice for your loan, identify and prepare the requirements needed for it (found in their respective websites), make sure you qualify to their eligibility standards, and lastly shoot your shot. I’m hoping you have learned something new with this “Personal Loans in the Philippines FAQs” Guide. Till the next blog post!
Ameena Rey-Franc
Personal Loans in the Philippines FAQs