(Updated March 22, 2017)
Borrowing money is part of our culture, however, it seems that avoiding repayments is also rampant. Know the rewards for being a responsible borrower.
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Benefits of being a responsible borrower
- Higher re-loanable amount and easy re-loan process
There are lenders who reward their loyal clients with the higher re-loanable amount when they have repaid their loans before or on their due dates. Paying diligently increases the level of trust given by lender. Also, if you make a re-loan, you do not have to resubmit all the required documents.
You may just be asked to update your uploaded payslip. If you have changed to make such as an increased salary, you may also do so, and this will make your loan process faster.
- Building up your credit score
If you are a responsible borrower and you have been getting a loan from a registered lender or bank, your credit information together with your payment behavior will be reported to Credit Information Corporation (CIC) and Credit Management Association of the Philippines, Inc. (CMAP).
Your positive record can be seen by your future registered lenders and this will make them know that you are creditworthy. However, if you have failed to settle your loan on time or worst, if you defaulted, your credit report will be negative. Your future lender can access your credit history and will see how you dealt with your previous loan repayments.
- Access to housing and car loans
Since you have a good credit report, this increases your chance to get a housing or a car loan. These types of loans have high loanable amount and banks will not approve those with a negative credit report. There could be lenders who claim not to check the credit history, however, they charge higher interest rates.
- Avoid late repayment penalty
If you settle your loan on time, you can avoid paying the late payment fee. There are no laws that standardize late payment fees, if you got a loan from a loan shark, you will be shocked by their skyrocketing late payment penalties. This is why a lot of Filipinos are “baon sa utang.”
- Avoid legal actions from your lender
Yes, unless there is an estafa case involved, no borrower will go to jail, however, lenders can still take a legal action by going to the court and filing a Small Claims Case. Any financial disputes under your name will also be recorded in your credit report.
How to be a responsible borrower
- Determine if you really need a loan
Ask yourself if you really need a loan or you just have to tighten up your belt for a while. Are your money needs genuine necessities or just out of whim? Getting a loan is a serious responsibility and must be taken lightly.
- Get the right loan
If you search the type of loans in Google or if you go in banks and inquire, you will discover that there are various loans you can choose from. These loans vary in terms, loanable amounts, and interest rates, but you have to consider first the purpose of the loan. This way you will be able to get a loan that best fits your financial need.
- Borrow only the amount you need and can pay at ease
It is best to use a loan calculator. If you are borrowing from a reputable lender, most probably they have a loan calculator on their website. If you are getting a loan from an old school company which you have to personally apply to since they have no website, then ask them how they calculate the loan with the interest rate and how much you have to repay each term.
With a loan calculator, you will be able to know the total amount you have to repay and how much you need to repay each term. This way you will also have an idea on how much repayment you can handle without sacrificing your basic needs. Isn’t it pitiful not to eat three times a day just to repay a loan and avoid penalties?
- Choose the best repayment term
Lenders have various repayment terms. Most of them have monthly terms and there are also others who offer loans in weekly and bi-weekly terms. Choose the one that can best meet your status. If you get your salary every week, you can get the weekly term, if you get your income twice a month, you may as well choose the bi-weekly term.
- Do not lie. Lenders are good with finding the truth
Honesty is the best policy indeed in lending business. Lending is an industry that revolves around trust and money. Lenders will only give a loan to those they deem creditworthy, so if the lender discovers that you are lying, then you will be automatically declined and your name will be written in an automatic default list. This means you will not be able to get a loan.
- Never hide existing loans
Your loans leave a record despite settling them long ago, and your existing loans are also recorded with CIC and CMAP. If you are asked if you have an existing loan, better tell the truth and still have the chance to get approved than lie and get automatically declined.
- Understand the loan contract
Most borrowers do not bother reading the contract as long as their signature on it means they are getting cash. However, the contract bares terms and conditions that may save your money and credit report.
- Meet the repayments
Make sure that you repay your loans on time to keep a good credit report and top avoid late repayment fees. Each day that you do not pay, you will be penalized.
- Keep a copy of your contract and repayments
There are times when your repayments take time before it gets registered to the lender’s system. Keep your receipts to prove that you already settled your loan. If you think your credit report has some error, you can also make it accurate by showing your repayment receipts.
- Keep track of your balance
To know when you will be able to settle your loan, keep track of how much you still have to repay. Also, you can make it as a motivation.
Options if you can’t repay your outstanding debt
- Talk to your lender and ask for an amicable agreement. Lenders will remind you of your due. If you can’t make your repayment on time do not ignore the lender’s calls. If your lender is a registered lender with a reputable image, it just most likely wants to get your due and not milk you much more than you owe. Talk to your lender and ask for other options. You will be surprised how helpful they will be.
- Apply for a new loan with a co-borrower to get approved. Use the loan to repay your existing loans. This is called debt consolidation. After settling your loans, diligently pay the loan you used for debt consolidation.
- Apply for a loan with a collateral. There are lenders who will approve your loan if you use a property or an asset as a collateral. Use the loan to pay off your outstanding debts and to avoid it from snowballing, then pay the current loan diligently.
Will you end up in jail if you don’t pay your loan?
- No, if there is no loan contract, but the lender can go to the barangay hall and demand a settlement there in front of the officials.
- Yes, depending on the signed contract. You can get jailed if the case involves estafa or bounced checks.
- Lenders can absolutely file a case against the borrower under the A.M. No. 08-8-7-SC Revised Rules of Procedure for Small Claims Cases for loans not higher than Php200,000. This case will be included in the borrower’s credit history and will remain on the record for years, making it impossible to get a crucial loan in banks.