by Venus Zoleta, on category "Personal Loan"
August 9, 2018
Looking for private lenders for a personal loan in the Philippines? Before you borrow from a private lender, you have to know first what you’ll be getting into.
Private lenders in the Philippines are non-banking companies or individual investors that provide short-term personal loans, mostly catering to OFWs, small business owners, and car buyers. Filipinos who can’t qualify for bank loans often turn to this kind of money lenders to cover their urgent financial needs.
Is it really better to borrow from such entities than a bank? Consider the pros and cons of getting personal loans from private lenders to make the right decision.
Private money lenders attract borrowers because they offer easy access to funds by simplifying their loan application process.
Compared to banks, private money lenders require fewer financial documents and are more relaxed in their conditions for loan approval. When you apply for a personal loan with a private lending company in the Philippines, you’ll be asked to submit only a valid ID or two, proof of billing, and proof of income such as latest payslips or income tax return.
A borrower’s credit history and credit score are a big deal with banks. That isn’t the case with private lenders. They don’t base their loan decisions on a borrower’s credit standing. Instead, they evaluate the ability to repay a loan through the submitted income documents.
Because of this, personal loans from private lenders appeal to borrowers with a poor credit score or no credit history, as well as those with an unstable income.
Private lenders won’t make you wait for weeks and months to approve your personal loan. Online lenders decide in as fast as 24 hours from the time of application. While some lenders take two to three days to process a loan, it’s still a quicker turnaround time than banks. Traditional banks take much longer to approve a loan because they spend time conducting data verifications, credit investigations, and background checks.
Private lending companies also release funds within the day of application or approval, or the next day at the latest.
Beneficial as it may be, borrowing from private lenders could also be very risky.
Private loans are known for their high monthly interest rates starting at 4% to 7.5% or higher, making the cost of borrowing expensive. Personal loans from banks in the Philippines have much lower monthly interest rates of 1.20% to 1.94%.
Why do private money lenders charge higher interest rates than banks? Private lenders have a higher cost of acquiring funds, and they’re lending to borrowers with high credit risk.
Private lenders get the funds they loan to borrowers either from private investors who are earning profits from their investments or from banks that lend money at higher rates. This increases a private lender’s cost of funds that they have to repay to investors or banks. They pass on that high cost to borrowers through high interest rates.
Also, such lenders carry a high risk of lending money to borrowers with a bad credit score or no credit history. It’s less likely that such kind of borrowers will repay their loans compared to those with a good credit score. Private lenders compensate for this high credit risk by charging high interest rates.
Most private lending companies in the Philippines expect borrowers to repay their personal loans within a very short period, ranging from two to 18 months. The longest repayment term for a private loan is 24 months.
Combined with a high monthly interest, a short loan term can lead to a high monthly mortgage. If you’re on a tight budget, repaying a private loan monthly can be very difficult.
In contrast, banks offer longer repayment terms (six to 48 months) on personal loans in the Philippines. The Citi Personal Loan has the longest term of up to 60 months.
Some private lenders ask borrowers to declare a collateral on their loans such as a house, lot, or car to raise their chance of getting approved for a personal loan. You may have secured a loan easily with a collateral, but once you fail to pay back your loan, the lending company may take away your valuable asset.
More than 2,500 private lending companies in the Philippines are registered with the Securities and Exchange Commission (SEC), which means they’re legally operating in the Philippines.
On the other hand, fake private lenders rip off borrowers through online lending scams. Promoting their loans on Facebook, Twitter, and other social networking sites, scammers pose as legit private lending companies. They trick people into providing their personal information (which makes them susceptible to identity theft) and paying a processing fee before releasing the loan proceeds.
But after the victims have deposited the payment for the processing fee, they’re blocked from the social media accounts of fake lending companies. Eventually, these scammers close all negative comments from their accounts or even deactivate them.
After weighing all the pros and cons, will you still borrow from private lenders? If you need a short-term loan to fund an emergency and you lack the documents required by banks, a private loan may be a viable option. Just be sure to deal with a legitimate private lender.
However, a personal loan from the bank is a smarter option if you’re looking for a loan with a low interest rate and a long repayment term, and you have a good credit history. Check out the best deals on personal loans in the Philippines with the help of an online comparison site like MoneyMax.ph.
(Photos from Freepik.com)