10 Mistakes Pinoys Do Before a Personal Loan Application
Personal loans are an easy sell for most Pinoys. They have flexible payment options, easy application requirements, and are readily available from banks. Most Pinoys use personal loans to start a business, fund their dream wedding, travel abroad, and start their home remodeling projects. Because personal loans do NOT require any collateral and have easy-approval, they are great for emergencies, too. But is that enough reason to get a loan?
Reality check: Are you ready for a personal loan?
The sad reality is that most Pinoys come unprepared for the responsibilities and burden that arise when “payment day” comes. When made out of ignorance, a personal loan can be your most expensive form of debt. We don’t want that to happen, do we?
Here are common mistakes Pinoys make before applying for a personal loan and how you can avoid them:
Mistake #1: Not being clear about the personal loan’s purpose
When offered a personal loan, the first question most Pinoys ask is: How much is the interest rate? While this is a good question to ask, the very first question you MUST really ask yourself is this: Why do I need to borrow money from the bank?
The problem with personal loans is that they can be used for almost anything – and the bank will not grill you for your reason. Decide if the money is for a need (such as an emergency) and not a want (such as a trip to Korea). Avoid personal loans as much as possible and if you want to take a personal loan, say for a home renovation project, see if you can SAVE the needed money instead of getting a loan.
Mistake #2: Not taking your budget into account
It’s not how much you can loan, but how much you can set aside each month for the repayment. The rule of thumb is this: your monthly payment should NOT be more than 15% of your net salary. If you have other financial obligations such as a car, debt or house payment, better not go over 10%.
Mistake #3: Choosing a longer loan tenure
Sure, you’ll pay a smaller amount each month, but you’ll pay more for interest in the end. If your budget allows, choose a shorter tenure. This rule of thumb applies to any kind of debt: the faster you can pay it off, the better.
Mistake #4: Keeping existing loans a secret to your financial adviser
Be brutally honest about your current financial status, including your existing loans. A good bank or financial adviser will always try to help you out. Banks still have a way to check your financial records, so stop wasting both your time and theirs and tell them upfront. Chances are, they can offer you a good program to help you in your current condition – or deny you of the personal loan if they think it can do you more harm than good.
Mistake #5: Applying for a loan multiple times
Applying again for a personal loan the nth time? Chances are, you might get rejected. Banks and credit companies have a record of every query and application you have for loans and credit cards. The more you apply, the more “desperate” you look. Choose the “one” (or keep a 2nd option) and apply.
Mistake #6: Not knowing your bank
Regulations on personal loans are almost similar across all banks and financial institutions; however, your bank may have special provisions and requirements. Save more time by familiarizing yourself with eligibility criteria, requirements, and rules of your chosen bank.
Mistake #7: Not telling your husband/wife about the loan application
This is subjective, but you should consult with your spouse when making a big financial decision. If your husband or wife is going to help pay for the personal loan, then it’s right to ask for his or her permission or advice before you apply.
Mistake #8: Not using online tools
There are already loan calculators online that can help you compute your monthly payment. Research on bank requirements online so you can go to the bank better prepared with your requirements already with you. An application form is even available online that you can print, fill in and even submit for easier application. You can take advantage of these online tools to help save time, gas, and energy.
Mistake #9: Not reading the fine print
A financial representative or bank agent can help guide you with the application, but you must read the contract (especially the fine print) before signing. Check for prepayment clause, processing fees, and other hidden charges. Did you know that some banks charge you for paying earlier than your deadline?
Mistake #10: Not comparing personal loans
There are available metasearch engines (a fancy term for comparison websites) such as GoBear that can help you compare financial products such as personal loans online. You can now easily compare fees, interest rates, and even requirements from top loan providers in the Philippines side-by-side so you can make wiser financial decisions. Use these tools to your advantage.
Applying for personal loans is a major decision and should not be taken lightly. We hope that after reading this, you will make smarter decisions when it comes to your personal loan and come out better prepared should you decide to push through with your application. The better you know, the smarter you buy.
**This article was contributed by GoBear Philippines — Asia’s first unbiased metasearch engine or comparison website for car insurance, travel insurance, personal loans and credit cards. The fintech startup is currently available in Singapore, Thailand, Malaysia, Hong Kong, Vietnam, and soon, Indonesia. https://www.gobear.com/ph