How To Apply For A Personal Loan: A First-Time Borrower’s Guide
We all need the extra cash. Bills pile up. Unforeseen expenses like car repair payments, medical procedures, and home improvement plans can make a huge dent in your finances. Oftentimes, you really don’t know how you can pay for all of it. The internet calls it #Adulting, a millennial way of saying that you’re now facing “real world” problems.
So, what do you do? Unless your parents, relatives or rich godmother are willing to help you out every time you find yourself backed into a wall, you’ll have to incur debt. It’s an #Adulting reality as inescapable as thinning hair and expanding waistlines. The trick is, to incur debt without finding yourself in a hole deeper than from where you started.
One solution is to apply for a personal loan. With a personal loan, you can have enough money to fulfill your obligations all at once while also having the flexibility to pay it off in monthly installments with interest.
However, it’s not that easy to get approved for a personal loan application. Banks and other legitimate financial institutions that offer them run a rigid screening process before approving borrowers. Below is an introduction to the steps your application will go through, along with a few tips and questions you have to ask yourself as you move along.
Factors that could help you get approved
The main goal is to show proof that you’re capable of paying whatever you’re borrowing, and this means you must tick the following boxes:
- A fixed and stable income. It establishes that you have the means to settle whatever debt you’re about to take on.
- A permanent job has a higher chance of getting his or her loan approved compared to applicants who work freelance or on a contractual basis.
- Financial record or credit history, to give banks and lenders an insight on your existing loans and your overall capacity to pay off those loans. Simply put, they compare your total monthly credit repayments to your monthly income to establish your debt-to-income ratio to see if you’ll be able to pay off an additional loan with them.
- An existing credit card in good standing.
Having an existing credit card is crucial to the process as it establishes your credit history. Since your credit company already has an idea of how much you earn monthly—information you have to share when applying—they can determine your debt-to-income ratio. Consistently spending beyond your reported means is a red flag and you’ll most probably be tagged as an erratic account.
Your credit report will also show your payment history. Being able to pay your credit card bills promptly will likely even out your supposed over-spending—thus improving the odds of your loan application getting approved. A credit history riddled with delinquent credit card bills reduces the bank’s confidence in you and will severely affect your chances of obtaining a loan.
However, not all loan providers require an existing credit card.
Qualifications when applying for a personal loan
The qualifications can vary from one loan provider to another, but there the basic requirements such as the following are same across all providers:
- A monthly income of at least ₱21,000 monthly.
- Employment of at least 1 year in your currently work place.
- Proof of address and residence for at least 1 year, this can be in a form of utility bills under your name or bank statements.
- An existing credit card that’s at least 6 months (for some providers).
These requirements still vary depending on the provider so it is best to do your initial research online or inquire directly to your bank of choice.
Interest rates can vary from one loan provider to another. If you want a lower interest rate though, go for secured personal loan. A perfect example of this is Citi Personal Loan– it offers an interest rate of 15.16% per annum (or 1.26% per month). The corresponding monetary value of the interest rate will be discussed with you and also indicated in the Disclosure Statement once you have been approved for the loan. Meanwhile, unsecured loans loans usual would be roughly around 18% to 20% a month, with shorter payment term and smaller loan amount.
Let’s say you plan to borrow ₱20,000 and pay for it within a year.
|HOW TO CALCULATE PERSONAL LOAN PAYMENTS|
|Loan Amount||Interest Rate (for one year)||Interest Amount||Total Amount||No. of Payments||Monthly Payments|
*Subject to deduction of bank fees and other miscellaneous fees
Before deciding on your final loan amount check first the interest rates currently being offered and match them with your preferred payment scheme. Opting for the minimum tenure scheme, which usually lasts for only six months, will result in significantly lower interest fees but higher monthly payments. Expanding your loan term, meanwhile, will have you taking on more interest but smaller monthly payments.
OFWs can’t apply for the regular personal loans from banks and other lenders because their income documents won’t match with the requirements for those loans. However, there are loan products made specifically for OFWs which match with their requirements and eligibility. Here are some of the best personal loans tailored to OFWs:
- BPI Land-Based OFW Personal Loan
- Global Dominion Financing Group OFW Loan
- Southasia Link OFW Personal Loan
Do a final check
Provided that you tick all the boxes, you should ask yourself anew whether you’re really ready to take on a personal loan. Remember that it should be for something that you really need but can’t afford yet. Don’t just borrow money for the sake of having extra cash around. If that cash isn’t used, it costs you more every day not just from the interest fees but also from its reducing value due to inflation.
As mentioned, different banks offer different interest rates; allot time to shop for the lowest interest rate, or at least the one you can really afford. You should also check out how much they value customer convenience. How clogged is their customer service hotline? Do they offer internet or mobile banking? Is their website always up and running?
Finally, don’t over-borrow. You should always look at whether you can afford a loan and take only what you can afford. Remember, smaller monthly payments may seem great on affordability but you could easily end up paying way more than what you’re actually borrowing! So always look the cost of it over the entire loan period.
A loan shouldn’t require you to make drastic changes to your life. Sure, you can be more conservative with your spending habits—eat at home more than eat out, for instance—but it shouldn’t affect your basic needs. You should be able to pay it off with your income and not by taking fewer showers to save up on water or living in complete darkness to bring down your electricity bill.
Otherwise, it probably means you can’t afford it and you should hold off your plans lest you want to find yourself in a financial mess.
If you urgently need additional funds and want to avail a personal loan, another reliable option will be an EastWest Bank Personal Loan. With a low monthly income requirement and turnaround time in 5 to 7 days, you can immediately resolve money issues that needs prompt attention.