Loans are great for serving a number of purposes. They come in handy for purchase of big ticket items, or a means to buy your dream house or car, or simply as a buffer for emergency cash needs.
However, applying for a loan for the first time can cause confusion, to say the least, and can come with serious financial consequences. To set you off to a good start, here’s an infographic filled with tips for first-time loan applicants.
Things to consider before applying for a loan
· Why do you need the loan?
I want a house.
I want a car.
I’m buying a new gadget.
I am opening a business.
I need to settle my medical expenses.
I have other things in mind.
· How much do you need?
Determine how much you need and how much you’re capable of paying every month.
· How long do you want to pay for the loan?
Assess the length of time that you would like to be paying for the loan.
· What is the interest rate?
A longer loan term means lower monthly amortization but higher interest rates, while a shorter term means higher monthly amortization but at lower interest rates.
· How much are the penalty charges?
Ask about the different charges and fees, such as late payment charge and prepayment penalty fee.
· What is your credit history?
Check your credit score and history status, and settle any unpaid credit card debt.
· How do you plan to play off the loan?
Create a financial plan and choose your payment method.
Types of loans
Personal loans are usually unsecured loans, which means it’s based purely on your credit score and does not require any collateral unlike secured loans. The interest rates may range from 1.2% to 8%, depending on the financial institution, and payment terms are typically shorter, from 6 to60 months.
Car loans are for people who don’t have enough cash to shoulder the full purchase of a vehicle. It has flexible payment terms of 3 to 5 years. It’s easy to apply for a car loan–just submit valid IDs and proof of income to get pre-approved. It may require you to have the down payment for the car to get approved.
Housing loan interest rates are decided between you and the financial institution, with payment terms ranging from 5 to 30 years. The lender maintains property rights as collateral, and an appraisal fee typically applies.
OFW loans work similarly as personal loans, but are specifically targeted at overseas Filipino workers (OFWs) with valid contracts. A co-borrower or immediate relative based in the Philippines is required. It usually has flexible payment terms to accommodate the specific needs of OFWs and their families.
Credit Cards or Cash Advances
Cash advances are short-term loans with higher interest rates and is typically paid for the following month. Some credit card companies offer longer terms from 3 to 12 months. The amount you can borrow depends on your credit limit.
Business loans can be used for a new business or the expansion of an existing one. Examples are line credit, equipment loan, and conventional business loan. Submit your business registration and tax documents to apply. Terms depend on the nature of your business and the agreement between you and your lender.