Everything You Need To Know About Personal Loans in the Philippines
We tell you everything about personal loans in the Philippines from starting your application, loan types, and finding the best loan that suits your needs.
Whether you’re financing your education, living situation, or just trying to pay off credits and consolidate debt, taking out personal loans is a great way to get started if you do not have the necessary cash flow to do so.
Applying for a personal loan means that you would be able to borrow a set amount of cash from a lender which you can pay off with interest on a set schedule. You can opt to get your loan with collateral (secured loan), or you can let your lenders use your credit history among other factors to determine your loan eligibility (unsecured loan). The type of loan you will get will dictate the interest rate that your lenders will give to you.
Before considering any type of loan, it is essential that you know the basics about personal loans and how you can best decide the type of loan to get. Read up on personal loans in the Philippines to understand more.
What are the Types of Personal Loans in the Philippines?
In the Philippines, there are various types of personal loans that you can apply for if you are in immediate need of cash to finance your current situation. Here are some of the most common types of personal loans that you can get in the Philippines:
A term loan is the most basic type of commercial loan. This type of loan will carry a monthly or quarterly payment schedule with a fixed interest rate.
Usually, small companies with sound business plans and financial statements would be able to apply for term loans from lending bodies like banks without issue. This is as long as the small business can prove that it can make a considerable amount of down payment to lessen the cost of the loan that’s fixed on a monthly or quarterly basis.
Term loans will usually be classified as short-term loans (less than 18 months of payment), intermediate-term loans (less than three years of payment) or a long-term loan (more than three years of payment).
Short-term loans are commonly offered to businesses that are not as financially strong as others. For example, if their financial statements aren’t good enough to qualify for a line of credit, then the bank may offer this alternative instead.
With this type of loan, there’s no need to use company assets as collateral. Short term loans can also come with balloon payments — a lump sum paid at the end of the loan which is significantly larger than the installment payments done monthly. This reduces the amount of the monthly repayments in the beginning stage of the loan, which helps businesses build capital and prepare for the end-of-term-loan lump sum payment.
For intermediate-term loans, payments are usually done monthly, paid through the company’s cash flow. Like short-term loans, intermediate-term loans can be made into a balloon loan—lower monthly repayments with a lump sum amount at the end of the loan.
While balloon loans can help businesses build capital in its early stages, it can be risky if the company fails to accumulate capital through the duration of the term loan. It is essential that businesses are confident of their business plan and strategy before they choose to opt into a balloon short-term or intermediate-term loan.
Among the term loans, long-term loans offer the maximum amount as capital. Repayments for long-term loans are usually acquired from the company’s cash flow and profits. Businesses also use company assets as collaterals for long-term loans, and the lenders can have a say on a specific financial decision of companies. For example, they can limit the financial commitments of the company— from their dividends, debts, to their principals’ salaries. In long-term loans, companies are required to set aside part of their profit for loan repayment.
Line of Credit
A line of credit gives you access to cash when you need it. This is often a pre-approved loan sitting in the bank without accruing interest as long as it isn’t being used. Interest will only start to take effect once you withdraw your line of credit (whether in part or full). This type of loan is usually offered by credit unions or banks.
PSBank has an SME Credit Line for small businesses that need to improve their cash flow to build capital. Businesses that pass the requirements and screening can have a minimum of ₱2,000,000 (when secured by real estate) or ₱500,000 (if borrowed against deposits). PSBank’s credit loan has a 1-year implementation date, renewable upon request. The interest rate will vary, depending on the prevailing lending rate at the time the loan was taken and the repricing and repayment schedule of the loan.
Banks like BPI, BDO, and Maybank have similar offers— annual loans that can be renewed yearly with an interest rate based on the prevailing average rate at the time of the loan.
Some of the most common requirements for a line of credit include the company profile, business papers, ITR and audited financial statements, bank deposit record of at least six months, customer and supplier contracts, tax documents, and location of your business.
A secured overdraft is a line of credit that allows you to pledge a collateral on your loan. Because this type of loan falls under the umbrella of a line of credit, it gives you the flexibility to withdraw pre-approved money from your bank anytime you need to improve your cash flow or invest.
As mentioned, this type of line credit is called “secure” as you will pledge a property with a considerable amount of value as collateral in case you cannot pay back your loan on time. Since there’s less risk in secured overdrafts, this type of loan generally comes with better interest rates and a higher maximum withdrawable amount.
PSBank’s SME Credit Line for small businesses is one of the available loans you can check out if you are planning on getting a secured overdraft. When acquired by a real estate property, small businesses can borrow as much as ₱2,000,000 worth of line of credit if they fit the bank’s criteria.
PSBank also has a Home Credit Line that helps its clients refinance loans or renovate their homes. It is a revolving credit line with a minimum line amount of ₱500,000 and a maximum amount of ₱5,000,000. The interest rate depends upon the prevailing interest rate at the time taken, and with the first Real Estate Mortgage (REM) over a satisfactory residential property as its collateral.
Other banks like BPI, BDO, and Maybank have similar offers, with probable differences on their offered interest rates based on the current average and the property you are going to put up as collateral.
As the name suggests, applying for an educational loan will help you finance your child’s education (whether in parts or as a whole). It is important to remember, however, that you would need to be at least 21 years old and earning at least minimum wage to apply for this type of personal loan.
Usually, the maximum average amount that people can borrow through personal educational loans is ₱2,000,000. However, that does not necessarily mean that everyone can borrow ₱2,000,000 easily. The amount you can borrow also depends on your monthly income, the number of your dependents, and the number of children who will need to have their education financed through loans.
Among the student loans you can look at when planning to look for financing options for your children are the Chinatrust and Equicom personal loans. Compared to other loans, these two offer the lowest monthly payments. Depending on the loan period you choose to have, you will have to pay around ₱17,500 a month for an educational loan of ₱180,000. Of course, the interest rate varies depending on the length of payment.
Both of these loans also offer the lowest total payment, inclusive of interest rate. A 1-year personal loan to finance your children’s education can accumulate around ₱30,000 of interest, which is a tad lower compared to other loans from various sources.
In the Philippines, you can get a generic personal loan and use it for your children’s education. However, there aren’t many loans specially dedicated to paying for tuition fees in the Philippines. Only banks like Maybank and Citibank offer specialized educational loans in the country, together with government loan programs like SSS.
Getting an educational loan can be a little complex, as loans like the ones offered by SSS bases the loan on multitudes of factors like the degree course taken or vocational course taken. Degree courses tend to get around ₱20,000 per program term, while vocational or technical courses can reach a maximum of ₱10,000.
This educational loan will be jointly funded by the national government and the SSS. The part loaned by the national government will not accumulate interest. However, SSS’ other half will have a 6% interest rate per annum based on diminishing principal balance until paid fully. Unpaid amortizations in SSS educational loans will charge a 1% monthly penalty, so it is important that people pay their loans on time.
Debt Consolidation Plan
This type of personal loan can be used for debt financing. In debt consolidation, you collate all loans and debts into one, while refinancing your previous loans to make one with better terms.
The amount you can borrow to consolidate your debt varies, but lenders usually have a maximum limit of ₱2,000,000 when it comes to debt consolidation loans. The amount you can borrow from the bank depends on your current financial standing and monthly income. Typically, people will regular income have higher chances of qualifying for a debt consolidation loan.
Depending on the bank you approach, interest rates for loans usually range from 13.20% to 22.70%. Most banks offer debt consolidation loans, so you just have to shop around and see what deal works best for you. Consolidating your debt can be a good option once you have prepared aptly for it, as you’ll be paying less on interest fees, and you’ll only need to deal with one lender instead of several.
Citibank’s Debt Consolidation Loan
One of the most transparent banks when it comes to offering debt consolidation plans is Citibank. This bank offers up to ₱2,000,000, which borrowers can have the option to pay between 1-5 years. In this type of loan, you won’t need to post collateral to borrow a considerable amount of money. You just need to pay the initial amount you borrowed, together with about 35.25% annual interest.
Citibank offers its personal loans to people between 21-65 years old, as long as the person is a Filipino resident or a resident foreigner with a valid Philippine billing address. The borrower also needs to have at least ₱250,000 annual income and must have a credit card, not necessarily from Citibank.
Other general requirements of debt consolidation loans include government-issued IDs, proof of billing, certificate of employment, DTI or SEC registration for self-employed applicants, and one’s most recent BIR income tax return filings.
Debt consolidation loans can be useful, but it is vital that you know what you are entering into before you commit to borrowing a huge amount of money. Since this is an unsecured loan (more about that later), there’s a higher risk that comes with borrowing the money. That means that the interest rate for this type of loan is higher than your average loan.
Study your financial situation first before you opt for loans like debt consolidation plans.
A salary loan gives companies the chance to financially empower their employees by providing the opportunity to get personal loans with a set payment term and fixed interest rates. At a glance, salary loans are definitely a good deal, especially if you usually have extra money to spare during paydays.
You have a lot of options when you want to get a salary loan, you can get it through your company if they have a lending system in place already. You can also approach banks to set a salary loan repayment schedule with your employer to finance your salary loan.
Maybank Salary Loan
Maybank’s salary loan gives employers the opportunity to provide loans as low as ₱15,000 and as high as ₱500,000, depending on the rank and annual income of the employee. Employees can choose their terms of payment, from 12 months to 36 months with fixed interest rates.
In Maybank’s salary loan, workers can loan up to 5 times their monthly salary without needing to look for a co-maker. Interested employees need to fit the criteria below:
- Regular employment status
- At least 23 years old at the time taken
- At least ₱10,000 – 15,000 monthly salary
- Without pending administrative cases
Security Bank Salary Loan
Security Bank also offers salary loans for employees of companies accredited under their salary loan program. Borrowers can have up to eight times the total take-home pay of the borrower per month, with a minimum loan amount of ₱10,000 and a maximum loan amount of ₱1,000,000.
Salary loans in Security Bank can be paid monthly from six months to 36 months, depending on the arrangement between the employee and the employer. Usually, application processing for salary loans can get approved in three to four days, provided that all documents are complete and verified. It has a ₱250 processing fee, 3% penalty charge if unpaid, ₱10 notarial fee, and incidental fees on a case to case basis.
The requirements needed in applying for a salary loan in Security Bank include:
- Application form
- Promissory Note (4 copies)
- Disclosure Statement (4 copies)
- Copy of company ID
- Copy of government ID
- Copy of BIR Form 2316
- Payslip sample, and more
Citibank Salary Loan
Citibank’s salary loan is also another option you can look into if your company is on its list of accredited companies. You can pay your loan for as long as 48 months, depending on your set-up with your employer. Citibank’s salary loans can get as high as ₱2,000,000 and can get approved in 24 hours provided that all documents are verified and complete.
Citibank’s salary loan doesn’t require collateral, nor does it need a co-guarantor. If you are between 21-65 years old, is currently employed in a salary loan accredited company for a year, and has a minimum annual income of ₱250,000, then you might be eligible for Citibank’s salary loan. Here are some of the requirements you need if you want to have a salary loan from Citibank:
- Government-issued ID
- Latest payslip, certificate of employment, or BIR Form 2316
- Application form with HR endorsement
- Employee regularisation attestation
- Employee income documents, among others
You can use your salary loans to finance anything you want, from home remodeling, your dream vacation, your children’s education, to even paying back your debts and as a source for emergency funds.
Emergency loans are a type of personal loan that give people, who are strapped of cash, a chance to have immediate financial mobility. While you can get emergency loans from virtually anywhere in the Philippines (relatives, employers, 5-6, etc.), it is always better to get one from formal sources as much as possible. Some types of emergency loans that you can apply for in the Philippines are calamity loans and emergency loans from SSS, PAG-IBIG, and GSIS.
Emergency loans are useful, especially since they provide flexibility and quick access to money when you need it the most. There’s also no need to put up collateral for emergency loans, and there’s a higher approval rate for this type of loan because of its nature.
Some of the most common requirements of major legitimate lending bodies like banks and government loans include:
- Government ID
- Copy of proof of billing
- Copy of proof of income, certificate of employment, or income statement
- Copy of SSS or GSIS contributions
An OFW loan is a particular type of personal loan afforded to Overseas Filipino Worker with valid and legitimate contracts. OFWs within and outside the country can try to take out OFW loans for any personal reason.
BDO’s Kabayan Personal loan is one of the premier specialized loans that OFWs can take. Repayment schedules can last for up to 36 months, and OFWs can either get secured loans or unsecured loans. Secured loans have an average interest rate of 17.07%, while unsecured loans are higher at an average of 40.57% interest rate.
To qualify for an OFW loan, a person must be at least 21 years old, a Filipino citizen, and can submit the following requirements:
- Government ID
- Copy of proof of billing
- Employment contract with the foreign employer
- POEA-validated contract
- Colored passport
- Colored working visa
- At least six months of remittance
- Proof of relationship with family members
If you are an Overseas Filipino Worker and you want to finance the current needs of your family urgently, getting an OFW loan is a special option that only a selected few can opt into. Out of all Filipino citizens, just about 2.3 million OFWs can have access to an OFW loan. Get the best for your family with an OFW loan from a credible source now!
Personal Loans versus Short-Term Lending
If you need to obtain access to cash flow for your personal need or for your business, you can either take a personal loan or depend on personal lending. Both of these options have their own advantages and disadvantages.
For short-term lending, the qualifications are not as strict as personal loans, but you need to pay back the money you have been lent in less than a year.
For personal loans, you will be able to negotiate the length of your repayment plan, with a more secure process. However, the qualifications and regulations are stricter than when you just opt for short-term lending. This is because you can generally borrow a larger amount with personal loans compared to short-term lending. Most personal loans also require collaterals, which means that there’s less risk in this type of loan compared to short-term lending.
Personal Loans versus 5-6
In the Philippines, there’s an Indian lending culture called 5-6 that many people still subscribe to. With this scheme, you will be able to borrow a set amount of money (5), but you need to pay it back with a 20% interest (6). For example, if you borrow ₱10,000, you will need to gradually pay back the lender a total amount of 12,000 within a certain period. If you fail to pay back the lender within that time, the already large interest rate will continue to grow and accumulate through time.
This repayment scheme is usually done daily in small installments, with just a verbal agreement between the lender and the borrower. This type of borrowing method is easier and more accessible to people who will usually be rejected by banks and credit unions.
A personal loan is a more formal type of borrowing that allows people to get a certain amount of cash with lower interest rates. However, you need to qualify and meet the requirements before you are able to take out this type of loan. Not all people can take personal loans. Usually, people with relatively stable jobs are the only ones allowed to apply for personal loans.
Lowest Interest Rate
The interest rate in security loans varies, depending on what type of loan you get, where you get that loan, and your current financial situation. One of the lowest interest rates you can find when applying for personal loans is 1.20% per month. BPI offers this personal loan interest rate with a fixed repayment schedule, ranging from 1 year of monthly repayments to 3 years of monthly repayments.
Most Flexible Repayment Schedules
Perhaps one of the most flexible repayment schedules is through Citibank’s personal loan offers. You can pay your loans to up to 5 years, as long as you’re employed or operating a business that can stand on its own.
Highest Loanable Amount
The bank that offers the highest loanable amount is BDO, with loan offers that could reach up to ₱3,000,000. Most banks offer a maximum loanable amount of ₱2,000,000, while BDO offers 33.33% more. When it comes to monthly interest rates, BDO gives 1.30% for a short-term (6-month) loan and 1.25% for 12-month to 36-month loans.
As you can see, there are lower interest rates and longer repayment schemes when you opt into loan deals with formal lending bodies like banks. However, it is true that people with low average income will usually not be able to get loans from such banks. Only banks like Security Bank offers loans to people with low average income (at least ₱15,000 a month), as long as the borrower is a regular and permanent employee.
Secured Loans versus Unsecured Loans
Secured loans are loans taken out with pledged collaterals, while unsecured loans are provided to borrowers with only the credit history and other determinants to depend on. You can choose to take secured and unsecured loans, depending on your need and your financial capability at the moment.
Knowing the difference between a secured and unsecured loan is essential. Secured loans usually have smaller interests, but failure to meet the demands of the loan can force you to surrender the property you’ve named as collateral. For unsecured loans, while you won’t need to put up collateral for this, the interest rates are usually higher, often with stricter requirements.
In the Philippines, the approval of your unsecured loan will be based on your credit history, credit score, and income stability. People usually submit various financial documents, which is the reason why applying for an unsecured loan usually takes longer. Annual interest rates range from 15.6% (Maybank) to 53.21% (EastWest).
When looking around for the best type of loan to fit your needs, it is best to consider everything— from the collateral you may be willing to put up, to the interest rate you think you can manage.
Principal Borrower versus Co-Borrower versus Guarantor
A principal borrower is the primary individual taking out a loan. This person is responsible for paying the entire amount of the loan within the given schedule, including the interest agreed upon in the loan agreement.
Usually, if the principal borrowers do not have a good enough credit limit to formalize their loans, they can get a co-borrower (also known as a co-maker) to back them up and allow them to obtain a bigger loan. If the principal borrower does not provide due payment on time, the co-borrower will assume the responsibilities of the borrower.
A guarantor, however, will not be liable for any type of loan repayment unless the lender has taken all possible steps to collect payment. The principal borrower also needs to formally default on the loan before the guarantor is required to pay anything at all.
If you are trying to secure a loan, look upon the detailed differences between a guarantor and a co-borrower first to make sure that you make the best decision for yourself. Before you sign up as a co-borrower or a guarantor for another person’s loan, it is also necessary that you study the terms and conditions to know the responsibilities you have if ever the principal borrower would not be able to keep up with their monthly payments.
The pros and cons of getting a personal loan
It’s not a secret that loans give you economic mobility, which is the reason why this is the main benefit of taking out a loan. You will be able to have the necessary cash flow to fund what you need— from house remodeling, business capital, emergency money, to tuition fees and board. Depending on the type of personal loan you get, you can get loans with the least amount of interest payable at the time schedule you need.
However, although you can gain a lot from personal loans, it is crucial that you know what you are going into before you finalize the process of acquiring personal loans. Some interest rates can be inexplicably high, especially if the loan is unsecured. Some loans have incredibly fast repayment schedules as well. If you want quick cash but are not sure if you can repay them, it might be better to look for alternative options that won’t accumulate interest.
Requirements of Personal Loans Application
Depending on the type of loan you are going to get, and where you are going to get it from, there are various requirements that you need to fulfill when taking out personal loans. Here are some of the most common requirements that banks need when individuals apply for personal loans:
- At least 21 years old
- Payslip copies of at least 3 months
- Latest BIR income tax returns
- Government-issued photo-bearing ID
- Financial statements
- DTI Business Permit or SEC Registration (for businesses)
As long as you have these basic requirements, it will be easy for you to find a loan for your next cash flow need. There are various personal loan options in the Philippines, from emergency loans to business loans. Find the loan that best works for you, so you have an easier time with the repayment of your loan inclusive of its interest rate.
Find the best personal loan for you
As mentioned, there are various personal loan options available if you need money for any type of purpose. If you have a small business and you want to borrow money to acquire equipment to quickly earn money and accumulate capital, having a business loan can be useful for you. If you are a parent in dire need of money to pay for your children’s education, then taking out an education loan from banks or government bodies like SSS is an option you can opt into.
If you’re planning on remodeling your home or financing another section of it, you can get a personal loan or acquire a home credit line from a trusted source. For OFWs who want specialized loans for their families back at home, they can apply for personal OFW loans and get special rates as long as they fit the criteria and pass all the requirements.
These are just some of the things you can do if you have access to loans from trusted credit sources like banks, credit unions, or government loan programs. As much as possible, it is vital that you stick to using such loan sources instead of informal loan agents like five to six lenders. You get better security when you opt into an organized lending body, and you have better interest rate options and payment terms with them.
As long as you are a regular employee earning a little above the minimum wage, then you are sure to find a bank or a government loaning unit like SSS to finance your needs. Find the best personal loan lender for you and look up their requirements to get your personal loan sorted out quickly!