And while more people now open accounts and have access to banks compared to previous years, the survey results revealed that 44 percent of borrowers still preferred borrowing money from friends and relatives over taking out loans from financing institutions. In fact, banks remain the least preferred source of loans among debtors, with only 3 percent electing to borrow money from them.
Perhaps, the main reasons why most Filipinos prefer informal lenders than banking institutions are the long and tedious application process and the fear of what may happen if they fail to pay their dues on time. If you have the same misconception that is keeping you from considering a bank loan, know that the lending climate is currently more amiable to borrowers than it was years ago. If you play your cards right and consider the following pointers, securing a bank loan that will address your financial needs is more doable than you might think.
Know Your Options
Before you start visiting banks or making inquiries, it is best to know what loan programs are available to you and which one fits your requirements. Note that the majority of banks in the Philippines, such as Robinsons Bank, offer loans in two distinct categories—consumer loans and commercial loans.
Consumer loans are loans typically offered to individuals so that they can pay for specific types of expenditures, such as purchasing a car or a real estate property. This loan category can be secured, which requires the borrower to put up certain assets as collateral, or unsecured, which means collateral is not needed. Here are some of the different types of consumer loans being offered by the top banks in the country:
- Personal Loan – This type of consumer loan is extremely flexible as it can be used to practically pay for anything, such as covering electricity and utility bills, buying groceries, or paying outstanding credit card debts.
- Housing Loan – This loan type is used for acquiring real estate such as a house and lot, a vacant lot, a townhouse, or a condominium unit. It can also be used for home renovation and reconstruction expenses, as well as for establishing home equity.
- Auto Loan – This type of loan allows the borrower to acquire a brand new vehicle, buy a used car, or refinance a car that the borrower already purchased.
- Motorcycle Loan – Similar to an auto loan, a motorcycle loan can be used to finance motorcycles, tricycles, and other non-conventional two/three-wheeler vehicles.
Commercial loans or business loans, on the other hand, are loans used to finance business-related expenses. Entrepreneurs can apply for a commercial loan to secure the needed capital to pay for daily operations, expansion, and purchase of equipment, among others.
Apart from knowing what types of loan programs are available for you, you should also explore different payment terms and interest rates. Ultimately, it is easier for you to plan and make the best financial decision if you know all your options.
Get More Information
Once you have identified the loan package that you believe best suits your needs, the next step would be to visit the bank and personally inquire about eligibility requirements and other essential information about the loan you are eyeing. Before you set an appointment, however, it is best to sit down and prepare your questions beforehand.
Make a list of all the things you want to ask, and bring a copy of this list of questions with you to the meeting. Never rely on mere memory since it is quite easy to forget your questions once the loan manager starts discussing the loan package. Make sure to ask about the documentary requirements, the approval process, timelines, and other additional documentary evidence that you may have to submit to increase your chances of securing the loan.
To ensure that all your queries are addressed before you leave the bank, do not hesitate to go through your list of questions once more. Make sure to take note of the name of the person you talked with for reference, and review everything you discussed with the agent once you get home.
Acknowledge Your Limitations
Assess your income and current expenses to determine the amount you can realistically borrow. You may want to compute for your debt-to-income (DTI) ratio to determine how much of your earnings will go to repaying your debt.
How do you do this? Get the sum of all your monthly debt payments, such as mortgage, loans, and credit card expenses, and divide it by your gross monthly income. Multiply the answer by 100 to get the DTI ratio.
For instance, if your monthly debt payments amount to PHP15,500 and your gross monthly income is PHP40,000, your DTI ratio is around 39 percent. This figure means you will spend 39 percent of your monthly income on debt repayments.
Note that a DTI ratio of 35 percent or lower is ideal. Besides increasing your chances of securing loan approval, you have more money left after paying your monthly obligations.
Boost Your Credit History
To boost your chances of securing a loan, you need to prove to the bank that you can be trusted as a borrower. You can butter up the loan officer all you want, but flattery is meaningless unless you can offer tangible evidence that shows how you truly honor your financial commitments and can be depended on to make monthly payments.
If you are thinking of applying for a personal loan, here are a few things you can do to beef up your credit history:
- Pay your credit card bills on time.
- Pay your bills in full.
- Pay off any outstanding debt or credit card balances.
- Control your credit card spending (spend below your credit limit)
- Avoid situations that could negatively affect your credit history, like bankruptcy or foreclosure.
Apart from the suggestions above, you can also set up a savings account in the bank you are considering and make regular deposits. Maintaining a sizable savings will improve your credit standing and give the impression that you are financially responsible and would most likely meet your loan obligations.
Maintain a Stable Source of Income
If you are planning to secure a loan, now is not the time to quit your day job and start freelancing work. Pursue your passion another time or after office hours because you have a better chance of getting your loan approved if you have a full-time job. Keep in mind that banks essentially assess the capacity of the borrower to pay when deciding to approve or disapprove a loan application. Having a full-time job means a steady source of income for paying debts.
If you are running a small business or similar pursuits that provide you with a decent income, you can still improve your chance of securing a loan by providing documentary evidence showing that you have regular earnings and pay your taxes. These documents may include copies of your Income Tax Returns (ITR), a business permit from the Department of Trade and Industry (DTI), and other permits and licenses issued by government agencies.
Be Truthful and Responsive
Just because the bank accepts all the documents you submitted does not necessarily mean that they will take them at face value. Banks conduct their own verification process. They have a team who will scrutinize the authenticity of all the documents you forwarded and of the information you entered in the loan application form. Keep in mind that even the slightest discrepancies in your financial documents and personal details could delay the application process or even lead to outright disapproval.
Once you have forwarded your application, make sure that the bank can reach you anytime. If the bank will request additional documents or information, make sure to provide what they need as soon as possible. Unless you want to completely sabotage whatever chance you have of securing a loan, never keep the bank waiting.
Expect a Waiting Period
Loan processing takes time as there are specific procedures that need to be followed. As such, you have to be patient. Instead of calling the bank every day inquiring about the status of your application, you may want to ask the loan officer to discuss the process with you. When you know the sequence of events, you have a better idea of what to expect.
Avoid applying for similar loans in other banks just because you find waiting extremely challenging. Apart from damaging your credit standing, applying for multiple loans all at once can also send the wrong message. Instead of giving the impression that you are financially responsible, the bank may think that you are in deep financial trouble and desperate for money. Will they want to approve your application then?
While it may be easier to borrow money from family and friends, securing a bank loan can be more beneficial in the long run. Apart from beefing up your financial credentials in the issuing bank, you can maintain good relationships with those closest to you even on the off chance that you’re unable to meet your payment obligations. You’ll also avoid being buried in debt of gratitude if you choose to borrow from a bank instead. To increase the chances of your loan getting approved and to make the borrowing experience more worth your while, be sure to consider the pointers discussed above.