Quick Guide To Loans
What Are Loans?
Loans are a form of borrowing done by an individual or an organization, such as an incorporated business.
In a loan, a lender—such as a bank, financing firm, individual, or a government agency— hands over a specified sum of money to a borrower. The lender and borrower need to agree on the terms of the loan, including interest rates, collateral (if any), due dates, penalties, and other stipulations.
To enroll in a consumer loan, business loan, or other loan program, visit your nearest Robinsons Bank branch today.
What Purposes Can I Get a Loan For?
Loans can be had for any purpose, including for buying big-ticket items, paying for medical emergencies, covering home repair expenditures, paying for mortgages, dealing with funeral expenses, purchasing income-generating assets for a business, and even covering payments for other loans. However, to mitigate the risk of nonpayment, the lender will sometimes stipulate the purposes for which a loan could be used.
What Is a Consumer Loan?
A consumer loan is a type of loan intended for specific consumer purchases.
It can also be defined as any type of loan given to a consumer. Consumer loans can be secured (backed up by a borrower’s assets, i.e. collateral) or unsecured.
Common types of consumer loans include:
- Car loans. This type of loan is used for financing a car.
- Motorcycle loans.A popular type of loan for financing a motorcycle.
- Housing loans.These are used to finance the purchase, repair, or improvement of a home.
- Credit cards.A flexible type of loan product that allows lending within a given credit limit. Unlike other types of consumer loan, the money borrowed through a credit card is not limited to a one-time amount.
Explore our website or visit your nearest Robinsons Bank to inquire about our latest consumer loan offerings. Be sure to check out our Go! Auto Loan, Go! Housing Loan, Go! And Motorsiklo Loan programs.
What Is a Business Loan?
These are loans intended for business purposes.
As with consumer loans, they can be secured with collateral or be unsecured.
Common types of business loans include but are not limited to:
- mSME loans. These are types of loans intended for starting, maintaining, and improving microbusinesses, as well as small to medium enterprises.
- Lines of credit (LOC). This is a flexible loan product that allows the business to borrow up to a defined limit. The borrower can take cash from the LOC account as needed. When the limit is reached and the balance and interest are repaid, the lender typically closes the account.
- Revolving credit. Sometimes called an open or open-ended LOC, this type of loan allows the borrower access to a set amount of cash, also known as a credit limit. Unlike an LOC, however, revolving credit is not a static amount. If you reach the credit limit, you cannot borrow again until you have paid the balance plus interest, after which you can borrow again from the same account.
- Term loans. These are loans for a specified amount of cash, with a fixed repayment schedule. Depending on the product, the interest of the loan can also be fixed, although it can also be variable.
- Invoice financing. Also known as accounts receivable financing, these loans allow a business to borrow cash due to unpaid receivables from customers. These can be useful for quickly getting needed cash flow for operations.
- Equipment loans. These loans are intended for purchasing equipment in order to help the business generate income.
- Commercial real estate loans. These loans are mortgages secured on an income-generating commercial property rather than residential property.
- Personal loans for business. These are technically consumer loans that are used for business purposes.
Talk to a Robinsons Bank representative to learn more about our business loan offers such as Go! mSME and Go! Small Biz.
What Is the Difference Between Secured and Unsecured Loans?
Secured loans are loans that require the borrower to put up collateral.
Unsecured loans do not require collateral from the borrower. Generally speaking, the amounts offered for secured loans can be much larger compared to unsecured loans, as the presence of collateral significantly reduces a lender’s exposure to the risk of a default.
What Is Collateral?
Collateral is an asset with significant value that can be used to obtain a secured loan.
The borrower promises to hand over the asset to the lender in case they default on their loan. Collateral is a way for lenders to protect themselves from the risks of lending. If the borrower defaults on the loan, the lender is left with an asset that they can sell to get back some or all of the value of the money they lent out.
The kinds of assets that can be used for collateral can be anything the borrower and lender decide on. Real estate, vehicles, fine art, jewelry, equipment, business inventory, accounts receivable, stocks, and other valuable types of property are common forms of collateral.
What Types of Loans Need Collateral?
Collateral is a common requirement for many types of consumer and business loans.
Loans for the purchase of a property will often have the property itself as collateral. Car loans, motorcycle loans, and housing loans will often include the assets purchased through the loan as collateral.
Some business loans, on the other hand, will sometimes require similarly valuable assets as collateral. These can include residential, commercial, and industrial property, as well as equipment and machinery. Be sure to consult your Robinsons Bank account officer to learn what types of collateral apply to your loans.
Do I Need a Good Credit Score to Get a Loan?
Because credit scores are an assessment of how big a risk a borrower is to lenders, a good rating can certainly help a borrower get more types of loans and better interest rates. However, there are almost always options for finding loans no matter the state of your credit rating. To learn more, you can discuss your options with your Robinsons Bank account officer.
Can Taking Out a Loan Improve My Credit Score?
In some cases, it can —providing you pay back the loan on time.
First-time borrowers will have lower credit ratings than regular borrowers who pay loans promptly because they represent an unknown risk. If you have established a pattern of paying back your loans on time, that will tell creditors that they have little to fear when it comes to giving you a loan.
Another way taking on a loan can help your credit score is if you take on a personal loan to pay off another debt on time. A number of debt repayment strategies, including credit card debt consolidation, use this basic concept to improve credit scores.
Needless to say, exercise caution when taking a loan to improve your credit rating. When in doubt, never borrow more than you can pay back. Feel free to discuss ways to improve your credit rating with your assigned account officer.
Are Loans Generally a Bad Idea?
Only if you can’t pay them back. Without loans, it would be impossible for most Filipinos to start a business, immediately own a car, purchase their own home, or handle emergencies that require significant amounts of cash.
However, there are some circumstances where taking on a loan can be the wrong decision. Taking out loans with very high-interest rates, from unaccredited lenders, or when you have trouble managing your finances can all be bad ideas.
Why Do Interest Rates on Loans Change?
It can be useful to think of interest rates as the “cost of borrowing money”.
From the perspective of the lender, it’s compensation for a service—lending the cash—and the risk of doing so.
Lending is a service as borrowers get cash to spend immediately. The alternatives are to save money or forgo the purchase. For example, if you want to start a business, you might have to save money for years, losing the value of your savings through inflation, before you can start one. By borrowing cash, you can start a business now and earn income sooner rather than later.
Lending is also a risky practice. Non-payment is a very real issue lenders have to face, as is the loss of cash value through inflation. There are also administrative costs and supply and demand forces at play.
Given the above, lenders may need to be able to readjust interest rates depending on the value of their service and the risks they may need to assume.
What If I lose My Income or Have an Emergency in the Middle of a Loan Term?
Loans can often be renegotiated, especially when it is not in the interest of the lender for the borrower to default. Be sure to contact your account officer to learn about your possible options.
How Will a Loan Improve My Life?
The value of the right loan goes beyond the simple monetary value of its principal and interest.
Loans can free you from the constraints of time and allow you to immediately act on a need. Whether you want to start a business or save yourself from bad traffic situations using a motorcycle, a loan helps you to gain the benefits while you’re still able. If you have big dreams, chances are they will be much easier to achieve if you have cash on hand—cash that, perhaps, only a loan can provide. So talk to a Robinsons Bank representative today and enroll in one of our loan programs.