The traps of personal loans and how to avoid them
Personal loans can be used to pay tuition fees, renovate your home, repair your car, or even fund a portion of your business. Most of the major commercial and thrift banks in the Philippines offer cash loans and get you approved in as fast as 24 hours. It’s the quickest way to get the cash you need and finance whatever you might need it for at the moment. You can easily get approved even without any collateral — known as unsecured loan — as it only checks your creditworthiness, or simply, your ability to pay back on your due date.
However, there are personal loan traps that you should be aware of and avoid if you want to get the most of your bank loans. Remember that personal loans means borrowed money. In order to avoid getting sucked into the debt hole, make sure to pay full on time and avoid these fees, when you can:
1. Disbursement fee: Disbursement simply means the act of giving the money you want to borrow from the bank (the lender) to you (the borrower). Disbursement fee is a small percentage you pay the bank for this process. Disbursement fees apply every time cash or a portion of the cash you want to borrow is "disbursed" or handed to you. Citibank, for example, requires a fee worth ₱1,750 for every disbursement.
How to avoid this trap: Ensure a one-time disbursement with your issuing bank to avoid big fees when getting your loan cash. Take note that disbursement fees are taken out of the actual loan proceeds so multiple cash outs will also result to more disbursement fees that you have to pay.
2. Pre-payment fee: It’s understandable when you wish to pay your personal loans early. However, paying in advance can also result to pre-payment penalties. This is to make up for the “loss” of computer interest. Sometimes, you even pay for more when you make an early payment than when you just finish paying off by the loan terms you agreed on with the bank.
How to avoid this trap: Just finish paying off your loan on the agreed terms and this won’t be a problem—even if you have a ready-cash to do so.
3. Late payment fee: It’s common knowledge that banks—and any other financial institutions—charge a fee for late payments on personal loans.
How to avoid this trap: Pay on time. That's really just it. No other way to it.
4. Loan modification fee: Some banks charge a fee whenever you have to change some details in your loan application. HSBC is one of the banks that do this.
How to avoid this trap: To ensure that you don’t get this extra fee, always check the details of your loan to ensure a smooth application. The reason for this is that processed personal loans enter a legal process and thorough process and any modifications can cause delay and adds another load of work for the bank.
5. Increased interest rates: Your issuing bank has the right to increase your loan interest rates due to some conditions especially when you constantly miss making payments on time.
How to avoid this trap: Just ensure that you pay your monthly dues on time to avoid late payment fees and the possibility of getting increased interest rates.
6. Bounced checks: Checks are good payment options since you can easily track it down. But it could be a big problem for you if you issue a bounced check. Banks usually charge a fee for bounced checks that might hurt you more than your current financial state.
How to avoid this trap: Always make sure that your check contains no erasures or any other form of “tampered information.” Of course, make sure that you also have sufficient balance in your account, which is the main reason why most checks bounce.
Also take note that there are other fees and charges that you should be aware of like fees for closure handling checks and judicial expenses. To avoid these traps, you can always read the fine print of your loan agreement or simply ask the bank representative for all charges that you should expect with your personal loan.
Personal loans are great. But don’t let yourself get trapped by not knowing the bank fees that come with them. Compare personal loans with GoBear Philippines and see for yourself which banks have the most to offer for your personal loan needs.