There are many Filipinos who are hesitant to avail of a loan from a bank. They think about complicated processes and strict requirements, as well as the possibility of being declined. Thus, some people opt for alternatives such as loan sharks (the so-called “5-6” lenders) and short-term cash loan apps.
The problem is that 5-6 lenders aren’t registered with any authority. There is also no documentation upon the release of the loan, so there’s no paper trail to follow. As such, borrowers don’t have any protection if something goes wrong. Some loan sharks also resort to questionable collection practices, including intimidation and blackmail. These risks are piled on top of the high-interest rates that can reach up to 20%.
Meanwhile, cash loan apps are somewhat more secure. Many of them are registered with the Securities and Exchange Commission or SEC. You can also pay earlier than the due date to lower the interest. The problem with these apps is that your initial loan will be limited to a small amount, sometimes as low as ₱2,000. In addition, the interest rate is only slightly better than loan sharks.
When you consider all of these factors, it’s easy to see why it’s ultimately better to avail bank loans in the Philippines. If you need to borrow money for whatever purpose, it’s best to go to a bank first and discuss your options. For those who are still skeptical, here’s a list of reasons that might convince you to get a loan from a bank:
A Bank Loan is Safe and Legal
Banks need documents like IDs and signed contracts before they process your loan application not because they want to make things difficult. Rather, all these requirements are for your own protection. With laws in place, such as the Truth in Lending Act, you can be sure that your rights as a borrower are upheld and protected.
Borrow Bigger Amounts with Lower Interest
Do you need money to start your own business? Are you planning a big-ticket purchase like a car or motorcycle? If so, informal lenders simply won’t cut it because they only offer limited loan amounts. On the other hand, banks can offer consumer loans or business loans that can reach up to ₱1,000,000 or even higher. What’s even better is that the interest rates are considerably lower. More often than not, you can avail bank loans with only 3% interest or less.
Note that the maximum amount you can borrow will depend on various factors like your capacity to pay. Banks won’t let you borrow ₱1,000,000 if you can only manage to pay ₱700,000. Like the documentary requirements, this is for your own protection. In addition, the interest rates will also vary depending on the payment terms and on the type of loan you avail.
Flexible Repayment Schedules
Most cash loan apps and loan sharks only have a maximum of 30-day loan periods. Loan sharks also tend to collect payments weekly. When you take out a loan from banks, the repayment schedules are much more flexible. Usually, the shortest payment term is 1 year with fixed monthly payments and the longest is up to 3 years. There are even some banks that offer up to a 5-year repayment period. Shorter repayment periods mean paying a higher amount with lower interest; longer repayment periods mean paying lower monthly amounts but with slightly higher interest.
There are No Middle Men
Are you planning to buy a car or a house? Some people opt to have the dealers or developers process their bank loans. However, do note that these dealers and developers are businesses that also have to make money. As such, you might end up paying more due to added fees. When you go directly through banks, there are no middlemen. You only have to deal with the rates from the bank itself.
You Can Pay Off Other Debts
For a variety of reasons, some people end up availing loans from different institutions. However, doing this can make it more difficult to pay for everything completely. You have to keep up with different payment schedules, not to mention different payment amounts that can quickly pile up. When you get a loan from a bank, you can pay off all your other debts and consolidate payments through a balance transfer service. This makes paying your loan more convenient because you only have to pay the bank. The bank can also help you restructure your payments to manage your existing debts.
It Allows You to Build Good Credit History
One of the best ways to build a good credit history with a bank is through applying for a credit card or a personal loan. Then, simply ensure that you pay your debts on time. Doing so will give you a positive reputation with the bank, which can be helpful when you want to borrow a bigger amount in the future. More importantly, you can establish a good credit history with the Credit Information Corporation. With a good standing, you’ll have an easier time applying and getting approved for future loans.
Don’t be afraid of bank loans and the seemingly complicated application process. It’s not really as complicated as you think. Moreover, going through the application process will ensure your protection. It will also help improve your future credit line. Consider bank loans as tools that can help you manage your finances. By using them properly, you’re one step closer to achieving your financial goals.
Want to read more articles about getting loans in the Philippines?
Read these:
How to get a loan without collateral
How to Build a Good Credit History
