Updated April 5, 2017
Warning: Loan sharks lurks everywhere! And they pretend as legit money lenders.
How do you spot them?
Applying for a personal loan has been easier now that Filipinos have various options where to get loans and which loans should best fit their needs. However, although there are laws and regulations to prevent opportunists from taking advantage of Pinoys’ financial needs there are still a lot of loan sharks lurking around to get an easy prey.
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In 2014 World Bank Data’s Global Findex Database, 69.7% of Filipinos experienced borrowing money and overall, 13.5% borrowed from informal private lender. Certainly, borrowing money has been deeply embedded in Filipino’s culture.
There is nothing wrong with getting loans, it actually helps people to survive the financial difficulty, however, you must be cautious not to fall for the loan shark’s bait. Loan sharks will surely do anything to coax borrowers, even pretending legit.
Find a Loan Shark
1.) Loan shark rates
Let’s be realistic, you get loans because there is a need for money you currently don’t have. You may not have a medical emergency, but you may need to add some more on your working capital for your small business such as a ‘sari-sari’ store, or you might just need to pay outstanding bills which have accumulated for months.
You may be in great need of instant cash, but however tempting it may be, do not succumb into getting loans with high-interest rates. Some loan sharks may sugar coat the deal saying they have quick cash disbursement if you agree to a 20% interest rate.
You may be able to pay what needs to be paid with your loan, yet the repayments might even be the one which will make you broke. You got a loan to get out of a financial sink hole, not create a bigger one. Get a loan only from trusted people and institutions.
2.) No documents needed
However troublesome it may seem, money lenders will always ask for IDs and other related documents. Being in a lending business is risky, it is understandable for lenders to validate your ability to pay loans at the agreed interest rate. Also, they have to know how much you can really handle when it comes to repayment because they expect you to keep your side of the deal.
On the other hand, loan sharks do not care for such documents as they don’t really expect you can pay fully. They will just make sure your loan will keep on ballooning.
3.) Unclear information in contract
Some loan sharks do not have contracts, while the cunning ones will create a contract with hidden fees and tricky fine prints. If you are not careful, you might commit yourself and your family to a long time financial, emotional and possibly physical dilemma.
The Philippine Republic Act No. 3765, known as “Truth in Lending Act,” mandates all lenders to be transparent with the loan costs in lending contracts. Each fee or cost must be itemized. There must not be any hidden fee, and the borrower must fully understand what is written before signing the contract.
4.) Literally takes items such as ATM, passport, and governments ID’s
Personal documents and IDs must always be in the possession of the owners. Not only it is hard to get these documents from various government institutions, but also there is a risk that these documents might be used for illegal transactions.
Lenders who are taking ATM cards as collaterals for short term loans are non-registered lenders who want to secure the repayments. Some borrowers shared that their ATM cards were never given back. It is best not to resort to this option to save yourself from trouble.
5.) Unclear Terms and Conditions
You should be getting a loan with an agreed repayment schedule, this gives you time to use the loan properly and gather resources to pay loans diligently. The repayment schemes may also help you recuperate financially while still paying for a loan, that’s why some money lenders give their borrowers flexible repayment terms that will best fit them.
How to Avoid Loan Sharks
- Use a Loan Calculator
Loans are risky, yet if done properly you can use it to get back to financial stability or even better. Since getting a loan will affect your future finances, it is best to use a loan calculator before processing a loan.
Most online private lenders provide loan calculators to give you an idea on how much you can borrow based on your salary and how much you have to pay on each repayment. Repayments can be weekly, bi-weekly or monthly.
As you already have an idea on how much loan amount you can take based on your salary, you can have a higher chance to get approved. Many lenders will approve loans as much as 40% of your annual net income.
- Do not take the first loan offer
While there are still some financing companies and private individuals who deal with borrowers personally, there are now online lenders who can give loans through online process. You have more options than before, do not settle yet with the first offer.
Each lender has different requirements, assessment schemes, and interest rates. Before you agree with the offered loan, make sure it is the best for you. Take time to shop around for other lenders.
- Compare interest rates
As said above, there are a lot of lenders who are willing to cater for your needs, however, do not settle yet unless you compare the lender’s interest rate. Remember that shark loans charge outrageous interests. To be more accurate, compare the loan’s effective interest rate per annum instead of the monthly interest rate.
Where to Get Legitimate Personal Loans
- Family and Friends
The Filipino’s usual first choice is to borrow money from family and friends. About 48.7% of Filipinos borrowed from friends and relatives because it has a very high chance that they do not ask for any interest rates, however, it presents a unique risk among your lending options.
While your family and relatives might not charge any interest and you may receive flexible terms such as installments and extended date of payment, failure to pay may cast relationship rifts. And you may not be able to borrow again if it takes a long time to pay on the first time.
Banks only deal with their own clientele. If you want to take a loan from a certain bank, you must have a bank account in their institution. Not to mention that banks have very strict policies. They readily check the applicant’s credit history and provided documents. Some banks don’t even lend to those who do not have any credit history.
They do not offer short term personal loans and they just offer loan products with very limited flexibility. If you want to get a loan, you usually need to have an asset. Simply put, banks understand risks of moneylending and they try to minimize it leading to mainly focusing on the benefit of the company.
- Private Lending Institutions
These lending institutions usually offer higher interest rates. Though their processing may be shorter than banks, it still takes around 2-3 days to get an approval. Most private lenders take collaterals and require co-makers.
- Online Lending Companies
We are now in the digital age, and the lending business in the Philippines is catching up. Filipinos can now get loans online, wherever they may be in the country.
There is no need to get in a line, deal with tellers, and bring a lot of documents. We know that the simple processing of most of these documents takes more time and money.
- Saves time
Since there is no need to get out, you can fill up your application form at the comfort of your home, or anywhere as long as you can connect to the web. You can even use your smartphone to start your loan application.
- Low-interest rate
Take time to compare the interest rates and lending type of the online private lenders. While some lenders introduce low-interest rates, others offer variable rates. These rates may be low at first but may increase after a certain period of time.
- More options
Online lending companies also offer various loans. Choose the one that fits your needs.
Want to try getting a loan application form an online private lender? Start your loan application and discover why Cash Mart has a vast loyal clientele. Experience your first online loan with Singapore’s leading lender, Cash Mart. Cash Mart Philippines offers different loans at the most affordable and sensible prices. Call or email its friendly staff now.