The word “utang” (debt) is connected with unpleasant associations among Filipinos. However, let’s look at the problem of borrowing from different angles. Should you buy something by loan if you cannot save money for it? At first glance, the answer is obvious – “No”. After all, it is logical to assume that if with current income and expenses it is impossible to save money, then where will the funds come from to pay the loan? But what if it’s not just a gadget, but a laptop that you need for study or work? Then the option of buying on credit will be justified. After all, this is an investment in yourself and a chance to earn more.
What types of lending are suitable for solving pressing problems?
Personal loan is suitable to borrow money and not report on its use. Some lenders refer to this type of loan as Consumer Loan, Multi-Purpose loan, or Unsecured loan.
The term Personal Loan is usually used by banks. Lending terms are favorable. First, the maturity can be up to 5 years, which allows you to borrow large amounts and have a small monthly payment. Secondly, the interest rate ranges from 12% – 36% per annum, as opposed to Payday Lenders’ rates 20% – 300% per annum.
Personal loan in numbers
Who else besides banks and Payday Lenders issues personal loans? Multi Purpose loans are mainly issued by credit cooperatives. The peculiarity of these cooperatives – they are not commercial organizations. In order to use their services, you need to join a cooperative, that is, make a contribution to their bank. The essence of these organizations is to provide mutual assistance. Some members of the cooperative lend to others.
You can also take out Personal Loans using P2P platforms. This scheme is somewhat similar to “Paluwagan”. Only the participants do not receive in turn a fixed sum of money, but earn on interest. The most popular P2P platform is FundKo. There you can borrow money at 12% – 35% per annum.
Despite the aforementioned claim that Payday Lenders do not have favorable interest rates, they are very popular. What is their success?
Let’s say you need 30000 pesos for 6 months. Let’s compare the cost of such a loan at AEON Credit Service (Payday Lender) and at Security Bank.
Personal loan 30000 pesos for 6 months in AEON:
- Interest rate 2.95% per month – 3173 PHP (for the entire loan period)
- Processing Fee – 1000 PHP
Total loan cost: 30000 + 3173 + 1000 = 34173 PHP
Personal loan 30000 pesos for 6 months at Security Bank:
- Interest rate 2.45% per month – 2624 PHP (for the entire loan period)
- Processing Fee – 2000 PHP
- Pre-termination Processing Fee – 2500 PHP
Total loan cost: 30000 + 2624 + 2000 + 2500 = 37124 PHP
It turns out that it is not profitable to take loans for a period of 6 months or less from a bank, despite the lower interest than Payday Lenders. Because banks practically do not issue Personal loans for less than 12 months and you will have to pay a fine. Also the fee for processing a loan in banks is higher than in Payday Lenders.
You can compare all available offers using the service – UpFinance. To do this, go to upfinance.com and select the type of loan you need. The service will sort and show on the page all credit organizations providing the loan you need.