Time deposits have been one of the most trusted investment option for ages now. Owing to its primary feature of assuring fixed returns while keeping your money safe during the fixed tenor, it stands tall as one of the most preferred investment options in the country today. In the Philippines, all banks with deposit options offer this product in Pesos, USD and other major currencies around the world. This humble deposit instrument not only ensures attractive returns at the end of term, but can also be used as a collateral to get loans/cards. Some of the commonly available products against Time Deposits are Credit Cards and Personal Loans.
The products above fall in the category of secured loans, provided against provision of a collateral.
How Does it Work?
It works similar to availing an unsecured loan, except for the ground rule where the monies held in the Time Deposit account is pledged as security by the applicant to secure the loan amount. On the basis of the value of the TD amount, banks and institutions disburse the loan/approve credit, which is a large percentage of the amount pledged. This involves minimal scrutiny in terms of the processing and documentation since the bank can rely upon the Time Deposit pledged to secure the loan.
How Much Can One Borrow?
Depending on the bank you’re applying with, one can borrow up to 80-90% of the monies held in the account or up to the maximum quantum of loan available under the product. In case of credit cards, it completely depends upon the multiple factors that includes a scrutiny of the credit history.
Do inquire with the bank for additional information on the nature of product offering.
Personal Loan Against Time Deposit/Savings Account
Owing to its flexibility to be used for almost everything under the sun, Personal loans are one of the most sought after loan instruments in the market today. Generally,the amount drawn under this category of loans are offered on unsecured basis(without a collateral). However, for certain category of applicants such as OFWs or applicants with low credit/no credit history, the loan is approved on the basis of monetary security. In such cases, one can offer monies held in Term Deposit/Savings Account to secure the loan amount.
Banks like the CTBC and BPI offer Personal Loans against TD in the Philippines.
Credit Card Against Time Deposit
Secured credit cards are offered for aspirants with no credit history. People looking forward to getting a credit card for the first time may be offered a card on the basis of monies held in Term Deposit accounts. After timely payments and building credit for months, the card can be converted into an unsecured one, releasing the deposit certificates pledged.
Benefits of Securing a Loan With Term Deposit
Quantum of Loan Amount
Offering a loan for someone who is ready to pledge their monetary instruments implies lesser risks in terms of handling a NPA(non performing asset) in the future. Therefore, you’re likely to receive a high loan amount of your choice.
Compared to an unsecured loan, the paperwork is limited since you don’t have to provide all those documents to justify your creditworthiness. Lesser documentation means faster approvals and timely disbursal.
Reduced Rate on Interest
Based on the bank and existing schemes, you can be eligible for a reduction in the base interest rate offered. They generally maintain exclusive rate slabs for applicants who are able to offer a monetary security.
Minimal Fees & Processing Charges
Unsecured loan applications can be billed a substantial amount of processing fee. In this case, you can be eligible for either a waiver or reduction in the processing fee and other regular charges such as prepayment penalty.
Disadvantages of Loan Against Time Deposit
While the perks of getting a loan against deposit instruments are plenty, one must consider the shortcomings listed below to ensure you maintain a comprehensive view about the loan you wish to avail.
- Until full repayment of loan availed against provision of security, the customer will not be able to withdraw the monies held in the deposit account until full repayment since the account will be frozen to offset against defaulters.
- You may be required to up the quantum of deposit amount on the basis of the required loan amount. Aspirants with limited savings may find it difficult to pool the required monetary resources into the account to avail the loan/credit card.
- In cases where the customer is unable to repay the loan amount or delays remitting the monthly EMIs, the bank may decide to utilize the deposit pledged. This not only brings down the value of your hard earned money, but also goes against personal credit in general.
The rate of interest charged for loans provided against term deposits is more or less the same as the base rate. Monthly Add On rates starts at around 1.00% for personal loans in Philippines. Banks like the BDO Unibank Inc. offers the best rate starting at just 0.78 percent for a loan term of 18 months.
Leading Banks Offering Personal Loans Against Time Deposits in the Philippines
- CTBC Bank
- BDO Unibank
- Bank of Philippine Islands(BPI)
One can also avail other types of loans such as Car or Housing on the basis of the placement amount in Fixed Deposit instruments. In loans that involve a higher quantum of loan, the deposit amount should be considerably higher.
The eligibility conditions remains the same with most of the banks. Some of them have been detailed below. Since its bank specific, it's good to check with the bank prior to application to make sure all documents are in place.
- The minimum age of the applicant should be at least 21 years.
- Should be a Filipino or should have lived in the country for a certain duration.
- Should carry a clean credit with no cases of defaults in the past.
- Must be willing to provide monetary security in the form of Time Deposits/Savings.
Tips Before You Decide To Avail a Loan Against Time Deposit
The money held in deposit instruments is your hard earned money that has been accumulated over a period of time. Before deciding to take a loan, weigh your mid and long term financial requirements and arrive at consensus by way of discussing with your family members. If the bank is offering an unsecured Personal Loan or Credit card at pleasing rates, do not hesitate to apply for it without pledging the deposits.
Most importantly, it's paramount to compare loans and credit cards before deciding which one to get. The market is filled with a plethora of offers from various banks and not all of them may suit your requirements. Apart from comparing rates and fees, one must also lookout for the nitty gritties such as its features and benefits so that you do not regret later for having signed up for a lousy product. Bankbazaar.ph is a dedicated site that aims to provide detailed information on various loan and financial products in the Philippines.