Personal Loans: 9 Ways to Borrow Money in the Philippines

Last Updated – Sep 15, 2022 @ 3:21 pm

Making ends meet is a huge challenge especially if you’re dealing with unexpected expenses or problems such as job loss.

If you’re short on funds, borrowing money is one of the fastest and most convenient solutions you can try. 

Loans are structured in a way that can be very beneficial to people who need money fast. However, some forms of debt are better than others.

If you’re smart with the debt you take on and you’re able to pay it off responsibly, it can be the ultimate solution for your situation.

What is a Loan?

A loan is an agreement between a person or organization (the lender) and another person or organization (the borrower) so one may be able to meet his/her financial obligations.

In a loan, the lender agrees to lend the borrower a certain amount of money at a specific interest rate over a specific time period, and the borrower agrees to pay back the money borrowed over the terms agreed upon.


Types of Loans in the Philippines

There are many types of loans in the Philippines, but before you know the most common ones, you first need to understand the difference between secured and unsecured loans.

A secured loan is a loan in which the borrower pledges some asset, or collateral, as a guarantee for the loan. For example, if you need a short-term loan, your home can be your collateral.

If you fail to pay the loan back, the lender will have the right to sell the house and get some of their money back.

Meanwhile, an unsecured loan is a loan that doesn’t require the borrower to pledge collateral or any asset as a guarantee for the loan.

Here are the most common types of loans that you can find in the Philippines.

Personal loan

A personal loan is a type of loan that allows you to borrow a specified amount of money from the lender for a specific purpose.

Personal loans can be used for a variety of purposes, from short-term debt consolidation to one-time expenses.

Housing loan

A housing loan is a type of loan that can be used to own a house or lot. It is also known as house financing.

Calamity loan

A calamity loan is a type of loan that can be used to help Filipino families recover from natural disasters such as typhoons and floods.

Auto loan

An auto loan is a type of loan that can be used to buy a car or motorcycle. It is also known as motor financing.

Appliance/gadget loan

An appliance/gadget loan is a type of loan that can be used to buy appliances and gadgets such as a refrigerator, air-conditioning unit, washing machine, and cellphone.

Business loan

A business loan is a type of loan that can be used to start a business, expand a business, or buy inventory and equipment.

Salary loan

A salary loan is a type of loan that automatically deducts loan payments directly from your salary at the time of deduction.

Installment loan

Also popularly known as “Buy Now, Pay Later”, this is a type of loan offered by lending institutions for commercial use, where borrowers can repay for their purchases in staggered payments. 


Pros & Cons of Getting Personal Loans in the Philippines

Like any borrowing option, taking out a personal loan both have positive and negative consequences.

Let’s take a look at the pros and cons of personal loans in the Philippines.

Pros

Can be used for a wide array of purposes

You have the freedom to use money from your personal loan for whatever you want. For example, you can use it to pay off credit card debt, buy a car, handle medical bills, and more.

Quick access to cash

Personal loans are very accessible. Some lenders even offer instant approval and can have your money transferred to your bank account in a few minutes.

Improves credit score

When you pay back your personal loan on time, it will improve your credit score. This can be extremely beneficial when it’s time to apply for a big loan in the future, like a house mortgage or car loan.

High borrowing limit

If you need a big amount of money instantly, personal loans can be the ultimate solution because most offer a high borrowing limit.

This way, you can get the money you need without having to come up with a big amount of cash upfront.

Debt consolidation

Debt consolidation is often the primary reason for people to get a personal loan.

If your credit cards are overflowing with debt, a personal loan can be a great way to consolidate that debt and repay it in a more convenient manner.

Most personal loans don’t require collateral

Most personal loans don’t require you to put up any asset as collateral to secure the loan.

This way, you can get the loan you need without being worried about losing any assets.

Cons

High-interest rates

Many personal loans have high-interest rates compared to other types of loans. This can cause more strain on your monthly budget.

Expensive penalties

Personal loans usually have steep penalties for late payments, which can add up over the course of a few months.

Can make your credit score plummet 

If you’re unable to pay back the loan, your credit score will suffer. This can make applying for a home or car loan much more difficult in the future.

Some may require collateral

While most personal loans don’t require collateral, there are still others that require it.

This can make it risky for you to borrow money because there’s a possibility that you may lose your collateral, forcing you to pay more money than what you borrowed.

Can increase your unnecessary debt

If you’re not careful, the personal loan can result in unnecessary debt.

If you’re taking out a personal loan to pay off your debt, you may end up spending the loan money on something else instead.


Cheapest Ways to Borrow Money in the Philippines

If you’re looking for the cheapest way to borrow money in the Philippines, you’re not alone. Here are some of the options you can consider.

Banks

Average Interest Rate: 25% – 36%1

If you plan to borrow money and pay it back in a short period of time, the cheapest option is to apply for a loan from your bank.

Most banks offer personal loans with competitive interest rates. The borrowing limit is high, and you can get the money to your account in a few days.

Pros

  • Customizable loan terms
  • Flexible repayment schedule
  • Easy debt consolidation
  • Easy approval

Cons

  • Stringent and longer approval process
  • There are many requirements
  • High Interest Rates
  • Harsh penalties for late payments

Banks that offer some of the lowest interest rates for personal loans:

BankInterest Rate (per month)
BPI1.20%
HSBC1.21%
Citibank1.26%

Learn More: How to Get a Bank Loan in the Philippines


Credit Card Cash Advance

Average Interest Rate: 2% monthly interest rate2

If you need to borrow money and pay it back right away, you can consider borrowing money from your credit card.

Most credit cards allow you to borrow money through a feature called cash advance or cash advance loan. All you need to do is insert your card into an ATM and receive your cash.

Pros

  • Quick access to cash

Cons

  • Limited borrowing limits
  • High interest rates

Government Loans

Average Interest Rate: 10%3

The government of the Philippines offers a few types of loans that are specially structured to fit the needs of the Filipino people.

Pros

  • No collateral required
  • Low-interest rates
  • Easy approval

Cons

  • Limited borrowing
  • Can have strict application requirements

Some examples of government loans in the Philippines include:

Pag-IBIG Multi-purpose Loan

Pag-IBIG Multi-Purpose Loan is a personal loan that you can use to pay for any kind of expenses. The loan has a longer repayment period, but the interest rate is lower than other personal loans.

Learn More: Complete Guide to Pag-IBIG Fund

SSS Salary Loan

This type of loan is equivalent to one month’s worth of salary. However, only SSS members who have at least 36 months of contributions and six months of contributions in the last year can apply for this type of loan.

Learn More: Complete Guide to SSS Online


Collateral Loan

Average Interest Rate: 0.39% – 2% per month

There are many collateral loan options in the country that you can leverage if you need money instantly.

One example is the Security Bank Finance Car4Cash which you can secure using your car’s OR/CR. For this loan, you can still keep using your vehicle.

Another choice is the AsiaLink Collateral Loans. Here, you can enjoy lower interest rates and higher loans that can reach P10 to P20 million.

Pros

  • Low interest rates
  • Easy application

Cons

  • Loan amounts are limited depending on collateral
  • You can lose your collateral

Cooperatives

Cooperatives are not-for-profit organizations that are focused on providing financial support for their members.

Cooperatives are democratic and member-controlled, so you can also get involved in making decisions. The following are examples of cooperatives you can join in the Philippines.

CooperativeInterest Rate
Paglaum Multipurpose Cooperative3%
Mutual Savings and Credit Cooperative1.56%
Gata Daku Multi-Purpose Cooperative1.25% – 3.5%
San Jose Koop1.7%
ACDI Multipurpose Cooperative1.5% – 2%

Pros

  • Interest rates are low
  • Applications are easy
  • Payment features are flexible

Cons

  • Limited loan amounts
  • Loans are limited to specific members

Fastest Ways to Borrow Money in the Philippines

If you’re looking for the fastest way to borrow money in the Philippines, there are plenty of options for you to choose from. Here’s a list that you can consider.

Lending apps & platforms

Average Interest Rate: 12% – 35%

There are a number of lending apps and platforms that you can use to borrow money.

These services are more accessible than traditional banks because they can be accessed through your smartphone.

Because they are web-based, you can apply even when you’re on the go.

Some of the most popular apps and platforms are:

Lending AppInterest Rate
Tala14.86% – 18.32%
Cashalo4% – 25%
Tonik5.42% – 7% (per month)
Robocash0.5% – 1.39% (per day)

Pros

  • Easy application
  • Quick loan (within 24 – 48 hours)

Cons

  • High-interest rates
  • Loan amounts are limited

Know more about lending apps and platforms here.


Installment Loans & Buy Now Pay Later programs

Average Interest Rate: 0% – 1% per month

Installment loans and Buy Now Pay Later programs are designed to help you by allowing you to spread the cost of your purchases over several months or years.

These loans usually have a fixed interest rate throughout the loan term, making it easy to budget your finances.

Some examples include:

  • Tonik Bank Installment Loan
  • Home Credit
  • Tala
  • Lazada Loans
  • Grab PayLater
  • BillEase
  • CLiQQ Loans
  • Shopee SPayLater

Learn More: Best Installment Loans & Buy Now Pay Later Apps in the Philippines


P2P Lending

Average Interest Rate: 12% – 36%

Peer-to-peer (P2P) lending is a concept that has sprouted in recent years. It is a way for individuals to get a loan without having to go through a bank or any other financial institution.

P2P lending platforms are designed to connect lenders and borrowers. The borrower can submit the loan application online and after that, the lenders will approve and fund the loan.

Some examples include:

  • Blend.ph
  • Vidalia Lending
  • Kiva Philippines
  • SeedIn
  • Acudeen

Pros

  • No collateral required
  • Easy application
  • Flexible repayment

Cons

  • High-interest rates

Pawnshops 

Average Interest Rate: 3% – 4.5% per month

Pawnshops are a type of loan where you can secure a loan by using any asset you own as collateral. This can include your personal items such as jewelry.

Pros

  • Easy access to cash

Cons

  • High interest rates
  • You may lose your collateral

Lending & Borrowing Options to Avoid in the Philippines

Sometimes, you may be offered loans and credit opportunities outside reliable institutions.

While their offers may seem attractive, you need to think about the risks involved. Here are some lending and borrowing options to avoid.

Payday loans

Payday loans are short-term loans that are usually small amounts and with high-interest rates. These loans are meant to cover your expenses until your next payday.

However, if you fail to pay off your loan on time, you’ll be charged a lot of late fees.

If you do choose to apply for these loans, always confirm that you can really afford to pay the money. Otherwise, you may end up in debt.

Loan sharks

These loans are illegal and unregulated. The loans are given out by people who earn money from the usurious interest rates on their loans.

They also have no scruples about intimidating their customers and threatening them with violence if they do not pay up.

High-interest loans

When you are looking for a loan to cover your expenses, it may be tempting to jump into a loan opportunity with a high-interest rate.

However, it is not worth it if you can’t afford the debt. If you can’t pay back your loan, you’ll be charged a lot of fees and penalties.


Tips for Getting your Loan Application Approved in the Philippines

Even if you have a stable income, your loan application can still get rejected. We’ve rounded up some tips that you can use so you can get your loan application approved in the Philippines.

Increase your credit score

Having a good credit score can make you eligible for better interest rates. Getting on top of payments can make your credit score look more positive and seem more responsible to potential lenders.

Check your debt-to-income ratio

Your debt-to-income ratio is the percentage of your monthly income that is spent on your mortgage, credit cards, and other debts.

Having a high debt-to-income ratio can lessen your chances of getting approved for a loan. If you plan to apply for a loan, you may want to consider lowering your debt-to-income ratio first.

Don’t take out a loan that’s too high

If you need a loan, it may be tempting to take out the highest amount that you can qualify for. However, this can lead to debt trouble in the future.

If you take out a loan that you can’t afford, it can be very hard to come up with the money. You may even have to resort to taking out a loan from illegal lenders to pay back your debts.

Always compare lenders

Different lenders have different interest rates and loan features. Before you decide on a lender, always check their interest rates, loan features, and loan conditions. 

Have your requirements ready

If you want to get a loan easily, you need to make sure that your requirements are clearly outlined and easy to understand.

Having your requirements organized can make your loan application process much faster.

Tips for Paying Off Debt 

Paying off your debt is one way to keep your finances in check. We’ve gathered some tips that you can use to keep your finances in check.

Create a budget

A budget can be a helpful tool that helps you keep track of your spending and gives you a clear idea of how much you owe.

By tracking your expenses, you can get a better idea of where your money is going and what you can do to pay off your debt faster.

Prioritize debts with high interest

If your loans have lower monthly payments, it can be tempting to focus on them first. However, it is best to pay off your high-interest loans first and then work your way down.

Pay more than the minimum

If you have a number of loans and you can afford it, it may be best to pay more than the minimum payments. This can reduce the time that it will take for you to pay off your loans.

Pay your bills on time

Paying your bills on time is another way to pay your loans on time. This can also help you avoid late fees and penalties, and it can also increase your credit score.

Consider debt consolidation 

Debt consolidation is a way to combine all of your debts into one loan. Instead of having several loans to pay back, you can have one loan.

Through this method, you can make your payments easier to manage, which can make it easier for you to pay off your debts.

Make more money

If you want to get out of debt, one of the most effective ways to do it is to make more money. By earning more money, you can afford to pay off your debts and reduce your debt-to-income ratio.

This can also make you eligible for more loans in the future.

Consider hiring a financial advisor

A financial advisor can help you run your finances and give you an idea of where your money is going.

Your financial advisor can also help you to come up with a budget that you can use to keep your finances in check.


Sources

  1. eCompareMo
  2. MoneyMax
  3. MoneyMax

About MJ de Castro

MJ de Castro is the lead personal finance columnist at Grit PH.

MJ started her career as a writer for her local government’s City Information Office. Later on, she became a news anchor on PTV Davao del Norte.

Wanting to break free from the shackles of her 9-to-5 career to live by the beach, she pursued remote work. Over the years, she has developed a wide specialization on health, financial literacy, entrepreneurship, branding, and travel.

Now, she juggles writing professionally, her business centering on women’s menstrual health, and surfing.

Education: Ateneo de Davao University (AB Mass Communication)
Focus: Personal Finance, Personal Development, Entrepreneurship, & Marketing

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