How to Distinguish a Responsible Lender in the Philippines

Distinguishing a Responsible Lender in the Philippines Updated on May 2023 

Most Filipinos have experienced borrowing money to survive a financial gap. While many are lucky to get help from family and friends, the second most popular source of loans is lending companies.

Whether formal or informal, lending companies have utilized various ways to promote their lending services. Don’t fall prey to loan sharks. Get a loan only from responsible lenders. Besides making sure that the lender follows the government’s lending regulations to protect you from possible loan sharks, a responsible lender also helps you with your credit report.

Before borrowing from a lender, take the time to know which ones are the responsible lenders among thousands of lenders in the Philippines.

Qualities of a Responsible Lender

Taking out a loan is safe and easy if you know what to look for. Below is a guide to identifying whether or not a moneylending institution is legit or not. 

Educates the borrower

All lenders want to earn money from a borrower. It is their business, after all. However, responsible lenders must also be financial partner who educates borrowers on loans and finances.

It is no secret that Pinoys still have a lot to understand about loans and good decision-making when saving up. We must be well-informed on how to maximize our finances. After all, we still believe the late weatherman Ernie Baron’s famous words, “Kung Walang knowledge, Walang power.”

Upholds transparency as adherence to REPUBLIC ACT No. 3765

The responsible lender guides the borrowers about their loans, including:

The principal amount of the loan

The amount you actually borrowed without the interest rate and other charges yet.

Rate of interest of the loan

The interest rate is the portion of the loan charged on top of the principal or current balance.

Service or processing fee (if any)

The processing fee, also called an administration fee, may either be deducted from the principal loan during disbursement or be charged to be settled during loan repayments. Responsible lenders discuss the processing fee before you sign the loan contract.

Loan sharks ask for advance processing fees and tell unsuspecting borrowers that they will not process the loan unless paid. After the victims pay, they will never receive a loan. Do not trust lenders who ask for advance payments. Legitimate lenders never ask for any payments before loan processing.

Amortization Schedule

Moneylenders are responsible for clarifying your amortization. You must clearly understand how much you have to pay in full, how much you have to settle on each repayment date when you are supposed to pay, how you will pay, and the cut-off time. This way, you will be well informed and know when the lender will start charging the late payment fees.

Any penalty charge for late amortization payment

Aside from the interest rate and the processing fee, the lenders can also charge the borrowers with late payment penalties. You have signed a loan contract that includes the dates when you have to settle your loan. It is legally binding, so you have to pay as agreed. If you do not hold your side of the agreement, expect you will be fined.

Collection fee (if any)

If the lender sends a collection officer to your house to personally get your repayments, you might be charged with a collection. Make sure that you understand how the payments are being collected. A lot of lenders do not want to charge a collection fee. That’s why they have created a convenient way for borrowers to pay. Borrowers may pay through various payment channels.

All other fees in connection with the loan transaction (if any)

There are also other fees that lenders might charge, such as appraisal fees for secured loans and early settlement fees. Before you sign your loan contract, ask your lenders for itemized fees.

Description of the collection

Lenders must properly discuss collection or repayment instructions. If you applied for a secured loan, make sure that you understand the consequences of failure to settle the loan and how the collateral will be handled.

The obligation in case of default

Though all responsible lenders want all of their borrowers to settle their loans, there are times when loan borrowers are unable to pay their dues. Lenders make sure that their borrowers understand the consequences of failing to settle their loans before signing their loan contracts.

• Requires a list of documents, especially: Government ID, payslips, and proof of billing

A responsible lender will ask for your documents to verify your identity, address, and ability to pay. Only loan sharks don’t care if you can settle on time because they can milk more money from delinquent borrowers.

• Has an official social media account

Lenders in the Philippines use Facebook, Twitter, or Instagram to reach out to their clients. It is effortless to make social media accounts, and no responsible lender will pass up this great chance to make their business known.

• Responds to inquiries

Responsible lenders value their customers and always uphold the ‘quality experience’ assurance because they want borrowers to be their constant clients. Though it may take some time due to the increasing number of clients, a responsible lender will send a reply at least within a week.

• Advises and approves the amount of loan you can repay at ease

Responsible lenders will never give you a loan that you can’t repay. Let’s say you are applying for a loan worth P30,000. As the lender evaluates your payment capacity, you only qualified for P25 000. Then the lender will discuss this option with you to ensure you can easily pay your loans.

• It has a loan contract and gives you your own copy.

Lenders must give you a loan contract and discuss everything in it. You must read and understand the contract before signing it. If you have any questions, do not hesitate to ask.

• Registered with the Securities and Exchange Commission

Legitimate lenders must be registered with SEC. This means their business is legal. They are paying due to taxes. They follow the government’s regulations and the Republic Act No. 9474, also known as the Lending Company Regulation Act of 2007.

• Personal information is treated as private and confidential

Lenders will respect the borrower’s privacy. Personal information will not be disclosed to a third party unless you apply to a bank or another lender.

Let’s say you have a loan with Lender A. Lender A will send your loan details and basic information to the Credit Information Corporation as mandated by Republic Act No. 9510 (Credit Information System Act). Even how you handled your payments will be recorded. If you apply for a loan from Lender B, Lender B will pull your credit report from CIC to know how you handled your previous loans.

Responsible Moneylenders Usually Consider the following:

Legit moneylenders do not risk eligible borrowers. They are considerate enough. 

• The type and amount of loan the borrower wants. This is because many borrowers apply for an amount that may not fit their current financial status. Your lender wants you to be able to repay your loan with ease.
• How the customer handled their finances in the past. Your lender needs to know your character as a borrower to know how you will handle your loan in the future.
• Any known future financial commitments of the borrowers may affect how they handle their finances, such as getting a car loan or insurance. These will get a chunk off of the family budget.
• Any future changes in circumstances with a significant financial impact on the borrower, such as pregnancy or a kid going to college soon. For example, a baby might be on its way. As much as you want to provide for the needs, including your new family member, this will greatly impact your budget. If you are getting a loan, be honest and ask for options to help you.
• The customer’s declared income and the family’s net income will assure the lender that they can settle their obligation.
• Any owned asset gives the lender assurance.

Rights of the Lenders

Nevertheless, legal lenders have the right to do as follows. 

• Decline a loan application if they believe it is not your best option, you can’t meet the repayments, and you are a high risk after a strict evaluation.
• Know the borrower’s credit history to evaluate your creditworthiness properly.
• Know the borrower’s current contact information as long as the loan is not yet settled. Changing your cell phone number in the Philippines is effortless, but do not use this to run away from your lender. Your lender is bound to find you and has the right to take legal action.

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