(Updated March 22, 2017)
In any way you put it, rejection hurts, especially when you least expect it. When you go online and search for lenders and bank loans, they all make it seem that loan application is very easy, if not effortless.
However, the truth is there are a lot of factors that greatly affects your loan approval. This is why you have to consider these five steps of getting a loan in the Philippines.
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Step 1: Know the specific purpose to get the right loan
There are hundreds of moneylenders in the Philippines and they offer various loans that can fit your specific needs. Each loan requires a list of eligibility and requirements you have to meet to apply for the loan. It is important to take time and know what you really need and which loan can best help your financial situation.
Housing loans are for those who want to purchase real estate properties such as a lot, a house-and-lot, a condominium, or a town house. While paying in cash is the best way to buy a property, we have to accept the fact that most Filipinos can’t save up enough money to pay in one go. This is why banks and other lending companies have created housing loans with numerous options at competitive interest rate charges.
If you want to buy a home or use your home as a collateral to get cash, then this loan is right for you. You can also use this loan to get some cash for home renovation. However, you might lose your home if you fail to repay your dues on time.
Car loan is for buying or reimbursing the amount used to buy either a brand new or used vehicle. If you finally decided to buy your own car, then you just have to pay the required downpayment upfront and the bank will handle the rest.
You are using the car as your collateral, this is why you have to also pay for certain fees such as appraisal fee, documentary stamps, and insurance. Buying a car in the Philippines is now made affordable by banks, you just have to equip yourself with the right steps that you have to take to avoid overspending.
Personal loans can either be secured or unsecured. Unlike the housing and car loans which have specific uses, you can use a personal loan in any way you want may it be for your kid’s tuition fee or for a grand vacation. There are various kinds of personal loans such as student loan, debt consolidation loan, wedding loan, salary loan or emergency loan. Moneylenders have various loan terms, competitive interest rates, and different range of loanable amount.
Business loans can depend on the size of a business. These loans are primarily used as a capital or a working capital to expand the operations. Most registered lenders offer unsecured business loans especially of the business is micro, however, banks offer secured business loan and usually caters only to SMEs which are already earning a regular cash inflow for more than a year.
Unsecured vs Secured Loan
Unsecured loans do not need collateral to be approved. These loans usually have shorter terms and have higher interest rates compared to secured loans. If you do not have any asset or property, you can get an unsecured loan provided that you can prove your creditworthiness. Secured loans are loans which you can only apply for if you have acceptable assets or properties.
The loanable amount will be based on the value of the collateral. While you may enjoy lower interest rates, you are putting your properties at risk as the lenders can legally seize it if you fail to repay on time according to your signed loan contract.
Step 2: Shop Around
Where to get a loan?
- Family and friends are the most common option for most Filipinos. We love to think that we are so closely knitted with our family and friends that we can even go to them in times of financial dilemmas. However, this is a very risky move as you are adding financial relationship onto your personal relationships.
In case you fail to pay as promised, your relative or friend’s face will always remind you of your unpaid loans. Reunions and special gatherings will be less fun to attend.
- Pawnshops are also one of the go-to places for Filipinos during financial needs, unfortunately, this option is only for those with acceptable valuable items such as precious jewelry, gadgets and signature bags or watches. Also, pawnshops do not accept payments in installments. You have to pay at one time, plus the interest rate. If you fail to settle your loan, you will lose your collateral.
- Banks are known to many as stringent lenders. They require a long list of requirements and take a sweet time to process the loan (sometimes they take more than a week). Also, you have to go down their office to finalize the process. Since banks are only open during weekdays, you have to take a leave from work. Most Filipinos also have a notion that banks only offer loans to well off people.
- Informal lenders are also one of Filipino’s top choices. They easily approve loans and charge high interest rates. Since informal lenders are not registered, their interaction with clients is not regulated. Informal lenders include the infamous “5-6” which you can repay daily or weekly.
If you fail to settle the loan, expect to be charged way more than you can easily pay. If you are not careful, you might fall into the hands of loan sharks who will do anything, even resort to serious threats, just to collect their money.
- Registered online lenders are regulated by Securities and Exchange Commission (SEC). The loan process can take at least a day and they do not require clients to go to their office. You can just apply online and upload your documents. They also usually let their clients use an online loan calculator to make well-informed decisions.
Which have the best rates, loan terms and quality of service?
When considering where to get a loan, do not settle with the one you come across. You have to take time and compare the interest rates which can be influenced by the loan terms. Longer loan terms may be charged with higher interest rates though the repayment amount seems smaller compared to the amortization offered for sorter terms. Also, take the time to read the reviews from previous clients to have an idea on how the lender interact with the borrower.
Are you eligible?
Lenders usually have a list of eligibility. Not all can apply for a loan. Lenders discretely create lists of eligibility to be met by prospective clients. Make sure that you meet the eligibility before applying for a loan to save your time and effort.
Step 3: Know your strength and weaknesses as a borrower
Lenders assess the borrower’s credit worthiness. Lending is a risky business and trust is something you have to gain from them to get your loan approved.
- Credit history
Let’s say that you had a loan in a bank. You were not able to settle it on time. Though you were able to pay the loan, you were late and this will be recorded in your credit history kept by Credit Information Corporation (CIC). CIC is a government owned credit information collector and disseminator.
Your loans from registered lenders and banks will be recorded for you and your future lenders’ reference. If you got a positive credit report, you will have a higher chance of loan approval. If you have negative credit report, you might have a hard time getting a loan from registered lenders and in banks.
- Check your documents
If you have shortlisted possible lenders you are interested in applying to, it is time to check out the required documents. Check if you will be able to provide the complete requirement and if all of them are accurate. Check the spelling of your name, your date of birth and other vital information. Lenders are very particular with consistencies of data, discrepancies may cause them to decline your application. Make sure that your documents are clear and readable.
- Regular income
You are required to provide your recent payslips to prove that you have a regular income where you can get funds to repay your loan. If you are self-employed, you may submit your bank statements to prove that you have been earning regularly. In case you are getting cash in some other ways, do not hesitate to call the lender and ask if you still qualify for a loan.
- Use a loan calculator
Knowledge is power. To make a sound decision, you need to be well informed and the best way to know how much you can borrow and how much you have to pay at your chosen term is through a loan calculator. Many borrowers just focus on how much they want to borrow, but they forget to check if they can actually handle the repayment that will come later.
The loan calculator will give you an idea on how much you have to handle each repayment and if you can actually repay without sacrificing your basic needs.
- Available assets
Most lenders prefer clients who have assets though they are offering unsecured loans because this gives them an assurance that you can still get funds in case you lose your regular cash inflow.
Step 4: Submit a complete the application form
- Disclose all information
No matter what the reason could be, it is best to include all the requested information. Lenders do not process loans if the borrower lack data. If you are trying to hide a crucial information, the lender will not approve your loan, so it is better to be truthful right from the start.
Let’s say you do not want to tell when you actually started your employment, lenders are particular if you are a regular worker or a contractual (less than 6 months), and you might end up declined.
- Enclose complete required documents
As a borrower, it is your responsibility to submit your complete documents to help the lender evaluate if you are creditworthy enough for the loan you are requesting.
- Know if there are fees to pay during your loan process
Secured loans sometimes have fees that you have to settle before your loan process can be finalized. Banks usually require an appraisal fee for those who want to get a housing loan or a car loan for used cars. Other than this, there are no other fees that you have to pay. Registered lenders and banks will never require advance processing fees. Never trust lenders who promise approval only after you pay the administration fee. This fee is supposed to be paid after loan approval.
Registered lenders and banks will never require advance processing fees. Never trust lenders who promise approval only after you pay the administration fee. This fee is supposed to be paid after loan approval.
Step 5: Expect a thorough verification
- Answer the phone call or give a callback time
Since it is important for the lenders to know if you are creditworthy, they are most likely to give you a call. If they call during your working hours, it is okay to tell them your convenient time to answer a call.
- Be honest
Never lie on your application form nor fabricate your documents. Lenders have well-trained staffs to spot these fabrications. If they found out your dishonesty, you will be declined and your name will be listed in their red flag list.
- Give heads up to your character reference
Some lenders, especially online lenders, will ask you to give a character reference. Tell your reference that someone from a lending company will be calling to verify some information. Lenders do not process loans if they can’t reach your reference.
- Ask questions too
During the loan process, you will either be called on the phone or (if it is a bank) you will be asked to come down their office. During the interview, do not hesitate to ask questions on the interest rate, loan term, repayment methods and such. Lenders prefer clients who want to be well informed as they can make better financial decisions.
You must remember that the loan process revolves around creating reasons for the lender to trust you. This is the reason why banks take 5 days to more than a week to verify all of the client’s information. If you are applying to registered online lenders, expect faster process but a grueling phone interview. If the lender deemed you as creditworthy, then your loan application will be approved.