What is a Personal Loan and how do you avail of it. Let is make personal loans simpler for you and help you with your Personal loan questions.

What is a personal loan

Where personal loans can be used for

Types of personal loan

Time Frame

Considerations

Warning

What you need to know before applying

Eligibility guidelines

Documentary requirements

Additional documents and fees

What is a Personal loan?

Most of the times, a personal loan is borrowing money without collateral. Because there is no home or car to repossess if you don't make your payments, these loans are considerably riskier for lenders. Extra risk means lenders must charge higher interest rates and require higher credit scores.

A personal loan has a shorter term than a mortgage. Instead of being for ten, twenty, even thirty years, a personal loan is usually for between one and five years. A personal loan can be used to consolidate a number of other loans into one. This will allow you to make one payment instead of many. This type of loan is also called a debt consolidation loan.

There are two categories of a personal loan, commonly it is an unsecure loan (without collateral), but depending on how much you are borrowing and your capacity to pay, the bank or financial institution can arrange a better solution for borrowing and even ask for a  “Secure Personal Loan” which in  this case would need collateral.

Personal loans can be used for any financing needs such as:

Personal Loans (Safety & Security)

These loans are used for more urgent matters and/or emergencies like:

·         Major and Minor Home Renovation / Extension

·         Educational / Tuition

·         Debt Consolidation / Refinancing

·         Medical Surgery / Emergencies

For Personal loans, may it be for Pleasure or Security, it is important to choose the interest rates which you are comfortable with and that is within your capacity to repay. Financial institutions offer a variety of personal loans with different characteristics.

Types of Personal loans

Fixed/Variable interest rates:

·         For a loan with fixed interest rate, the monthly payment stays the same for the term of the loan

·         For a loan with variable interest rates, as indicated in the name, the rate will change over time (usually the bank lending the money will update it per year). This loan may seem more attractive at first, because the initial interest rate is usually lower than the fixed rates. However, if the interest rate rises over time, so does your monthly payment

Secured / Unsecured loans:

·         Unsecured loans do not require collateral from the borrower. If the borrower fail to pay, the bank has nothing to reposes

·         A secured loan requires some type of collateral, and the loan amount is usually a percentage of the value of the collateral. If the borrower fails to make payment as agreed, the bank can take the collateral

Time Frame

·         Unsecured personal loans are typically from 12 to 48 months. Secured personal loans vary depending on the type of collateral. Cars may have terms from 36 to 72 months and home equity lines may be much longer. The buyer's preference, bank rules and type of loan usually determine the term of the personal loan.

Considerations

·         Most banks offer a variety of application methods including Internet, phone and handwritten applications at a branch office. Incentives may be offered to individuals to set up payments automatically deducted from a bank account each month. Other banks send monthly statements or provide a book of payment coupons. Internet banks may offer to direct deposit the amount borrowed into a borrower's account at any financial institution, or pay off other debts directly.

Warning

·         Unsecured personal loans usually have significantly higher interest rates than secured loans. An individual with a secured personal loan, who fails to make the agreed upon monthly payments will have the collateral repossessed by the bank. The credit bureaus will be notified of defaults as well, affecting an individual's future credit rating. When not secured by a home, interest paid on personal loans is not income tax-deductible.

When applying for a personal loan you need to be careful and to be fully informed. Make sure:

·         You fully understand that you are borrowing and the need of repayment

·         The solution you choose will be of real benefit to you and not just a short term fix (e.g. investment rather than impulsive buying)

·         You have achieved control over your debts

·         You are fully informed of the consequences of the steps you are taking

·         There are no hidden costs like extra taxes and penalty charges

·         You are better off as a result of the solution you have chosen

Most Banks and Lending Companies have more or less the same eligibility requirements, here are the basic:

Eligibility Guidelines

Employed Borrowers

1.       Borrower must be at least of legal age and of capacity to repay at the time of maturity

2.       At least 2 years with the current employer

o    Supervisory level and upwards

o    Of sufficient monthly income depending on the terms require by the bank or financial institution

o    Employer must preferably belong to the Top 7,000 Corporation

3.       Preferably Credit Card holder

o    Preferably with a Checking Account

o    Must have favorable credit checking

Self-employed and Professionals

1.       Borrower must be at least of legal age and of capacity to repay at the time of maturity

2.       At least 5 years in the same business or profession

o    Business must have been in operation for the past 5 years and profitable for the past 2 years 

3.       Preferably Credit Card holder

a.       Preferably with a Checking Account

b.      Must have favorable credit checking

Documentary Requirements

EMPLOYED:

1.       Filled up application form

2.       Original certificate of employment w/ compensation or 1 month pay slip

3.       Photocopy of latest ITR or BIR 2316

4.       Photocopy of 2 valid IDs

5.       Photocopy of latest credit card

6.       Billing statement with residence address (if cardholder)

7.       Photocopy of latest utility bill if residence address is not stated in #5 requirement

SELF EMPLOYED (Single Proprietorship):

1.       Filled up application form

2.       Photocopy of DTI

3.       Photocopy of latest 2 years ITR and Financial Statements

4.       Photocopy of latest 6 months bank statements;

5.       Photocopy of 2 valid IDs

6.       Photocopy of latest utility bill (Meralco, PLDT, Water)

7.       Photocopy of latest credit card billing statement (if cardholder)

8.       List of 3 Major suppliers and customers

SELF EMPLOYED (Corporation):  

1.       Filled up application form

2.       Photocopy of SEC

3.       Photocopy of latest 2 years ITR and Financial Statements

4.       Photocopy of latest personal ITR

5.       Photocopy of latest 6 months personal bank statements

6.       Photocopy of valid ID

7.       Photocopy of latest utility bill (Meralco, PLDT, Water)

8.       Photocopy of latest 3 months credit card billing statements (if cardholder)

9.       List of 3 Major suppliers and customers

ADDITIONAL DOCUMENTS:  

1.       Bank certification if borrower has an existing loan with other banks (status and details)

2.       Statements of Assets and Liabilities duly prepared by Accountant and certified correct by the borrowers for loan amounts of Php 500,000.00

Fees

·         Processing Fee ( Amount depending on the company)

·         Credit Life Insurance

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