personal loan

Top 5 Reasons To Choose Personal Loan Over Loan Sharks


Life is a *potato. It's hard to find a job and even harder to start and maintain a business with the Philippines having one of the most significant tax rates in Asia. Where do people go to find quick cash? They resort to banks for a personal loan. But mounting requirements and long processing time are considerable drawbacks to Pinoys in need. People have found loan sharks or what is usually called "5-6," which means "if you borrow 500, you give back 600." They offer a whopping 20% interest rate, versus bank rates of 1.4%. And Pinoys are willing to take that risk.

Loan sharks defined

Last January, President Duterte issued a warning against loan sharks who lend money to government employees and teachers with very high-interest rates. Aside from cash, the loan sharks also offer items like beds, cabinets and other household necessities marked with expensive tag price; taking advantage of many people’s inability to buy such goods in cash.

A loan shark is usually an entity that charges interest rates way beyond the legal standard. Their funds generally come from unidentified sources, and they operate in mid-level income neighborhoods or even on the internet.

Loan sharks vs. Sangla-ATM

Loan sharks may not require collaterals from their borrowers. They just need to sign a document as proof of their informal loans. On the other hand, Sangla-ATM is a Filipino way of life wherein the ATMs that receive their monthly salaries are surrendered to lenders as security. Simply put, loan sharks are unsecured while Sangla-ATM is secured types of informal loans. There is not much difference between the two although Sangla-ATM entities have lower interest rates compared to 5-6 credits. The prices could be explained by the fact that ATMs are surrendered to lenders as a guarantee to pay back the money loaned.


sangla atm


The Sangla-ATM scheme has earned popularity among minimum-wage earners who cling onto opportunities to get money and resolve their current situation immediately. Borrowers can always make over-the-counter withdrawals of their income even without the ATM but banks have imposed charges, and the lenders would consider the act as treachery.

Why loan sharks can be a terrible choice

Here are the reasons to think about before you get into the water with loan sharks. We'd also suggest that if, in the end, you will choose personal loans from the bank rather than from illegal lenders, please compare with GoBear on We don't bite, and we're free to use.

1. Loan sharks do not require background checks

Stringent background checking from banks and other legitimate lenders is probably the main reason why ordinary Filipinos refuse to apply for personal loans – the same reason why they prefer to borrow from loan sharks. Despite the considerable interest, 5-6 acquire a lot of customers due to the ease of application and releasing of funds. More often than not, borrowers seek refuge from loan sharks when they needed to be bailed out of credit woes.


loan shark


Sometimes, when we opt for an easier way out of financial problems, we fail to realize that we are heading towards more severe money issues.

2. Loan sharks are illegal and punishable by law

Call it 5-6, the bastardization of bank personal loans is a form of usury - an illegal business of lending money at unreasonably high-interest rates, which mostly favors the lender. If you're ever in dire need of money, just remember that loan sharks offer them at 20% interest rates. And if you can't pay back, there's a massive possibility of intimidation, that could lead to something else.

 3. Personal loans allow you to build a credit history

Do you plan to open up a business in the future or get other lines of credit for getting a house or a car? Getting a small loan initially or applying for a credit card and paying diligently is your best bet to secure bigger loans in the future. Headed by the Credit Information Corporation, the organization "collects, collates and disseminates credit information" from and for different banks in the country. Which means it is easier for banks to check if you have a history of delinquent payments from another bank. If you have a good credit standing, approving your loan will be as advertised by the bank — 5-7 banking days.


personal loan

4. If it's too good to be true, it's probably illegal.

Loan sharks only need 1 or 2 IDs to scan or photocopy, and you can get your money in 24 hours or less. Some even ask you to give an initial payment before they give you the loan as collateral. Later on, you can't contact them anymore. And you won't be able to track them, because they're not a registered company. Congrats, you signed a deal with the devil.


poor woman

5. Personal loans allow you to consolidate your debt.

Some people get personal loans to pay the debt from other lines of credit. This sounds counter-intuitive at first, but it's a smart move. There are a LOT of programs today which allows you to transfer your debt from different banks into one bank with lower interest. Most banks have this service called balance transfer, which is also one of the segments you can compare using GoBear. Your debt from the loan shark? Well, that's not applicable in balance transfer. There is also a program called "Inter-debt Relief Program" to help you get rid of debt.

People also read:

5 mistakes to avoid when applying for personal loans

Should You Get A Personal Loan for Your Dream Trip?

Bottom line:

While the Filipino culture allows for so many ways of borrowing money, it doesn't mean we should grab whatever is available. It is high time we ponder on our choices. The easy way out always comes with a consequence. Sometimes it is better to get through the tedious personal loans application process and be assured not to get drowned further into debt traps. Loan sharks, 5-6, Sangla-ATM of whichever ways you want to call it, are impractical and dangerous options that will definitely not improve your line of credit or credit history in the future.

Personal loans are not only a practical choice for getting out of debts. These financial tools could also help you manage your finances for as long as you apply from legitimate lenders. 

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