Many occasions and events in life put you in a spot where there is a need for credit. Thankfully, there personal loan products that come to your rescue at these times. However, not all personal loans are equal. There are many factors that one needs to consider before taking out a personal loan.

In the Philippines, personal and salary loans are easily available from several vendors. However, each loan type is meant for a specific purpose and often borrowers don’t know the difference between the various types and their relevance to the borrowing needs. Here’s a handy guide that helps you choose wisely:

Term loan

The term loan is one of the most common types of commercial loans. It carries a quarterly or monthly payment schedule on a fixed interest rate.

This is ideal for small companies that have a sound business plan and account statements. They can easily apply for term loans from lending bodies, so long as the business can prove it can make the down payments easily.

Term loans are typically short-term or intermediate-term or long-term depending on the time period they are drawn for.

  • Short term (less than 18 months of payment)
  • Mid-term (less than three years of payment)
  • Long-term (more than three years of payment)

Personal Loan Eligibility Criteria

All credit vendors in the Philippines have extremely strict criteria for the loan to be processed. One must meet all these requirements. These are some of the eligibility criteria set by banks in the Philippines:

  • One needs to be a Filipino Citizen or married to a Filipino Citizen
  • The borrower must have a monthly income of P20,000 if employed, P30,000 if an overseas Filipino worker and P50,000 if self-employed.
  • One needs to be at least 21 years of age at the time of the application. Some banks and providers also stipulate that the borrower to be below 60-7 years of age upon the maturity of the bank. However, this criterion varies from one bank to another.
  • The borrower must be working for at least two years with the present employer. If the applicant owns a company, then he/she is required to show positive income for at least 2 years.
  • Borrower must be a resident within the lending area of the credit provider
  • Must have a good credit rating and a functional bank account.
  • Must not be involved in any outstanding court cases related with failure to pay a debt.

Flat Interest Rate

A flat interest rate is charged on the borrower’s loan without taking periodic payments. For example, one has borrowed P10,000 with an interest of 10%, that is to be paid in five equal installments. The total interest charge for the entire term would be P5,000, that is P1,000 a year. However, the debt is not reduced by the paid amount. In case of flat rate computation, the borrowers are still required to pay the interest in full like it was calculated at the beginning of the loan. This is because the interest is charged on the initial amount.

Can you repay early?

Since lenders lose money from the expected interest rate earnings if borrowers repay their loan before the maturity period, there is a penalty for early repayment. Borrowers, of course think that it is a great idea to pay back the loan before the end of term but you need to be aware of the penalty in that case

Early Repayment Penalty. Lenders will lose money from interest rate earnings if a borrower decides to pay his loan in full before the maturity date.

As a borrower you may think it’s a great idea to pay back your loan before the term ends, but you have to be aware that lenders will charge penalty. Therefore, to apply for a personal loan in Manila, ensure to look out for these terms in the loan policy. Some terminologies you need to be aware of: early repayment penalty, early redemption fee, redemption charge and financial penalty.

Of course many banks and lenders allow borrowers to pay the full balance of the loan at any time with no charges or fines, whereas some may charge a small fee as a percentage of the outstanding balance. Read the fine print because it varies for all providers.

Late Payment Penalty

Many a times borrowers forget to pay the monthly or quarterly payment on time, resulting in a late fine. Typically, the unpaid amount is charged at a late penalty of 5% per month. Be sure to set up reminders and make your payments on time to avoid being penalized.

Are salary loans the same as personal loans?

You may probably be aware but salary loans are quite different. They are usually approved quickly and available to people who may not have a great credit rating. Since the interest rates are very high for salary loans, they are not designed to be paid back in the short term. The purpose of salary loan is to help those whose salaries don’t stretch well enough to cover the living expenses and emergencies.

Finally, do your research and read the fine print well, before you sign up for any personal loan in Manila.