5 Most Common Loan Types in the Philippines

When you find yourself in a critical situation and need financial assistance, you might start considering using a loan service. There are many types of loans in the market, and one of the crucial factors is choosing the right loan. Let’s understand each loan type, and their repayment terms to ensure you do not make the wrong choice.

Before we start to see each type of loan, it is better to check what kind of loan is suitable for you by asking yourself the following questions.

1. How much money do you need?

Be realistic: Think about how much money you really need. Consider the actual cost of what you’re using the money for (like paying off debts or making a big purchase) and add a bit extra for unexpected expenses. Don’t borrow more than you have to because you have to pay it back with interest, and borrowing too much can cause financial stress.

2. What is the purpose of getting a loan? 

Different reasons for getting a loan have different loan options:

• If you want to pay off debts, you might consider personal loans with flexible terms.
• Medical bills could be managed with special medical loans.
• Buying big things like cars or appliances might have specific financing options.
• Choose the loan that fits your purpose the best.

3. What is your credit score?

A good credit score means lower interest rates: Check your credit score before applying for a loan. If it’s good, you might be able to negotiate for lower interest rates. Try to improve your score before applying if you can.

Lower credit scores mean higher interest rates: If your credit score isn’t great, be ready for higher costs.

4. What is your income and employment status?

Lenders want to know if you can pay them back: Having a steady job and income history makes lenders more confident that you can repay them. This might get you better loan terms.If your income is not regular, like if you’re a freelancer, show proof of income with things like tax returns or business statements.

5. What is your preferred repayment term?

Longer terms mean smaller monthly payments: Monthly payments are less, but you pay more interest overall. Pick a term that fits your budget and takes interest into account.

Shorter terms mean higher monthly payments: Monthly payments are more, but you pay less interest in the end. Find a balance between what you can afford and paying off your debt quicker if you can.

Common Loan Types in the Philippines

1. Personal Loans:

• Purpose: These unsecured loans can be used for various purposes, such as debt consolidation, medical expenses, home improvement, education, or travel.
• Loan amount: Typically ranges from PHP 1,000 to PHP 100,000.
• Repayment terms: between 12 and 60 months
• Interest rates: Generally range from 1% to 3.5% per month.

2. Salary Loans:

• Purpose: Borrowers can use these loans for various needs, similar to personal loans, but the loan amount is usually based on their monthly salary.
• Loan amount: Typically up to 3 months’ worth of salary.
• Repayment terms: Usually deducted directly from the borrower’s salary through payroll deductions.
• Interest rates: Can be higher than personal loans, ranging from 2% to 5% per month.

3. Payday Loans:

• Purpose: Designed for short-term needs and emergencies, with quick approval and disbursement but high interest rates.
• Loan amount: Typically small amounts, up to PHP 5,000.
• Repayment terms: Up to 2 weeks.
• Interest rates: Can be very high, reaching up to 40% per month.

4. Home Loans:

• Purpose: Used to purchase a property, such as a house, condominium, or townhouse.
• Loan amount: This can be significant, depending on the value of the property.
• Repayment terms: Up to 30 years.
• Interest rates: Generally lower than other loan types, ranging from 3% to 10%

5. Car Loans:

• Purpose: Used to purchase a car.
• Loan amount: Depends on the value of the car.
• Repayment terms: Up to 5-7 years.
• Interest rates: Typically range from 9% to 11% per annum.

These are just some of the most common loan types available in the Philippines. When choosing a loan, it’s important to consider your needs, financial situation, and creditworthiness. Be sure to compare interest rates, fees, and repayment terms from different lenders before making a decision.

Remember, borrowing money should be done responsibly. Only borrow what you can afford to repay, and make sure you have a plan for making your payments on time.