Sometimes, even if you’re earning enough to support your needs, there are circumstances when you have to borrow money. Things like home repairs, emergency medical expenses, and the like may put a bit of pressure on your budget that taking out a loan may relieve.
Fortunately, there are plenty of options to choose from for borrowers. Aside from the usual banks and financial institutions, there are now financial technology (fintech) companies that offer easy-to-avail loans. Of course, before you submit your application, you need to consider several factors first. Doing so will make it easier for you to manage your finances.
That said, here are some key considerations before you take out a loan:
What Is the Purpose of the Loan?
The first thing you have to figure out is the purpose of your loan because this will help determine a lot of things for you. These include things like where to get your loan and how much to take out (discussed more in detail below).
Different people have different reasons for borrowing money. However, the most common ones are for business purposes, emergencies, and personal expenses. The latter encompasses different wants or needs, such as loan consolidation, travel, and gadget purchases among many others.
How Much Do You Need?
Once you know what you’ll be using the money for, the next thing you have to determine is how much you actually need. For business purposes, home renovations, and other similarly “big” goals, you’ll likely be needing a higher amount. Depending on your plans, you may need to borrow millions. Meanwhile, personal expenses can be a lot lower.
If you’re looking for smaller loans, it’s best to go for a cash loan. While banks can also lend you a small amount, their documentary requirements usually remain the same no matter the amount you’re borrowing. With a cash loan from fintech companies, you’ll usually need only proof of identification and proof of billing/income.
How Much Will the Installments Be and Will You Be Able to Pay?
When you take out a loan, you don’t stop at planning for how you’re going to spend the money. You also need to think about the payment options, payment schedules, and, most importantly, if you’ll be able to pay. This entails studying your debt-to-income ratio. Most experts agree that 43% should be the maximum. This means that if you earn Php 10,000 monthly, your loan payments should be only Php 4,300 or below.
For most loans, whether from banks or alternative lenders, you’ll have to pay monthly amortizations. However, do note that some cash loan providers may allow you to pay the borrowed amount in full after a month or so. It all depends on how much you borrowed and, of course, the terms set by your loan contract.
When Do You Need the Money?
If you’re in a rush to access the money, say for emergency expenses, bank loans may not be your best option. At the very least, it will take a few days to review and approve your application; then, once approved, the proceeds can take a few more days to be credited to your nominated account. Meanwhile, cash loans usually only take hours to be approved and disbursed.
However, if you need larger amounts, your best bet is to really apply for a bank loan.
Are There Any Loan Fees?
Most types of loans have some sort of processing fee that will be charged to the loan proceeds. As an example, a Php 30,000 loan may have a processing fee of Php 2,500 depending on the lender. Simply put, you may not receive the full amount. This is crucial if you need a specific amount of money. Make sure to ask the lender if there are any fees that you have to pay.
For banks, there usually isn’t a way to avoid such charges. For cash loans, however, there are some companies that waive or don’t charge processing fees. You should also take note of any penalties or other charges that you have to pay if you miss your due date.
What Are the Disbursement Options?
Nowadays, there are multiple ways that banks and other lenders disburse your loan proceeds once your application is approved. For larger sums, such as those amounting to hundreds of thousands or even millions of pesos, you will be issued a check. You can then encash this check or deposit it to your preferred bank account.
For smaller loans, you will usually have two options for disbursement: through your bank account or through your e-wallet. The latter is a great choice if you don’t have a bank account or if you simply find it easier to manage your money through this medium.
Getting a loan can be a little nerve-wracking, especially if it’s your first time and/or if the purpose is for an emergency. For an easier time and peace of mind, keep in mind the above considerations when applying for and taking out a loan.