What are Personal Loans?
Loans are one of the biggest saving graces for those looking for financial assistance to procure different items and for various other purchases. These requirements can range from buying a house, and funding a vacation to tuition fees, purchasing vehicle(s), paying off credit card bills and so on. However, banks and financial institutions provide loans for specific purposes as well such as home/housing loans that provide financing for customers who want to purchase houses, auto/car loans to those who want to buy cars or other vehicles and so on.
However, the most popular of all loans is generally considered to be personal loans. This is due to the fact that personal loans can be used for myriad purposes ranging from tuition fees and purchasing cars to home renovation and funding a vacation. Personal loans are not restrictive by nature and this makes this a commonly procured loan. All major banks, lenders and financial institutions provide personal loans to citizens within the Philippines. The amount of interest charged, tenure of repayment and other factors vary from bank to bank. Most of them offer tenures of a year to five years generally. Customers look for interest rates and the tenure offered by these banks as important factors while deciding which bank to procure personal loans from. Lower the interest rates, more attractive are the loans to customers.
What are no collateral loans?
Personal loans can be broadly categorized into two types - Secured personal loans and Unsecured personal loans.
Secured personal loans are referred to those personal loans wherein customers have to provide an additional collateral as security. These collaterals can vary depending on the loan amount procured. Providing a collateral will result in a reduction of interest rate on the loan as the collateral acts as security for banks and lenders. In the event of customers being unable to repay their loan, the bank can seize the collateral and use it to recover the loan amount.
Unsecured loans, also known as no collateral loans are simply those personal loans that do not require an additional collateral. These are usually favoured by customers as they do not have to worry about losing their property (which would have to become the collateral in case the loan was secured), but due to the increased risk for banks, the interest rate imposed on such loans is higher.
What is a collateral?
Collateral is simply something that is valuable, such as an asset, property, vehicle etc., something of value that is pledged to the bank or lender while procuring a loan from them. In case the customer is unable to repay their loan then the bank/lender can seize the collateral and use it to recover the debt amount by selling it.
What are the different types of collaterals?
There are many times of collaterals that can be pledged. These can range from physical collaterals such as homes and vehicles to intangible ones like investment holdings and bank accounts. This is dependent on the loan requirement.
Other collaterals include the property that the loan is being procured for. For example, if an individual is availing a loan for the purpose of purchasing a factory then the factory itself can be a collateral.
Other collateral requirements are dependent on the lender and the purpose of the loan itself. Customers can also negotiate with the bank or the lender with regards to the property/item being pledged as the loan.
Collaterals are primarily required by lenders and banks as loans constitutes a risk, and in order to reduce this risk, banks require assurance.
However, it is also possible to procure loans without the requirement of a collateral. These ‘no collateral loans’ are provided against a higher rate of interest. In case, customers do not repay loans on time, then banks use the credit of the customer to recover the debt amount and impose penalties and charges, making it even more difficult for customers to repay these debts. Peer to peer loans and credit cards are also forms of unsecured loans.
There are many top banks within the Philippines that provide no collateral or unsecured loans to customers at reasonable interest rates. Some of these are -
- BPI or Bank of the Philippine Islands provides personal loans without the requirement of a collateral. Their interest rate vary based on the tenure chosen by the customer.
- If the term chosen by the customer is 1 year or 12 months then the interest charged is 25.6%.
- For an 18 month term the interest rate is 25.74%.
- For 2 years or 24 months as the tenure, the interest rate is 25.59%.
- For a tenure of 30 months, the interest rate is 25.33%
- For a 36 month tenure, it is 25.03%.
- BDO, one of the largest banks within the Philippines also provides no collateral personal loans. Based on the tenure, the interest rates vary.
- For a 6 month tenure, the interest rate is 26.27%
- For a 1 year or 12 months term, the rate of interest charged is 26.63%
- For a tenure of 18 months, the interest rate is 26.76%
- For a time period of 24 months, the rate of interest applicable is 26.58%
- For a 36 month tenure, the interest rate is 25.98%
- Standard Chartered is another prominent bank that offers personal loans to Filipinos that do not require a collateral. A monthly add on interest rate of 1.1% is charged along with tenure options of 12 months to 48 months.
- EastWest Bank offers unsecured personal loans at rates of interest mentioned below. These dates are dependent on whether it is a carded segment or a non-carded or limited segment -
- For carded segments, the add on rate of 1.49% - 1.69% is charged monthly and for non-carded, a rate of 1.89% per month is applicable.
- The interest rate charged annually for carded segment is 31.51% for a 1 year tenure and 34.01% for a 3 year tenure.
- The annual interest rate charged for limited or non-carded segment is 39.53% for a tenure of 12 months and 37.53% for a tenure of 36 months.
- RCBC offers personal loans without the need for a collateral to citizens within the Philippines at interest rates that are fixed. Tenures of 6 months to 36 months are offered and an interest rate of 16.08% per year and an add on rate per month of 1.40%.
A monthly add on rate of 1.20% is applicable.
An add on rate of 1.30% per month is applicable on a 6 month tenure and 1.25% for all other tenures.
Advantages and Disadvantages of no collateral loans
As is the case with almost every type of loan, loans that do not require a collateral also comes with its own set of pros and cons. The obvious advantage of such kinds of personal loans is that, it constitutes a lower risk to customers as even if they are unable to repay their loan, they will not lose any property or car (or any item they would have pledged in case the loan required a collateral) . As mentioned previously, no collateral loans can be procured by many major banks and lenders within the Philippines such as EastWest Bank, Capital Union and others. No collateral loans are the preferred option for customers looking to borrow a small amount of money. Customers with good credit records can procure such loans easily.
Conversely there are also disadvantages to procuring no collateral personal loans within the Philippines. Since these kinds of loans constitute a higher amount of risk for bankers and lenders, the rate of interest imposed on such loans are more than usual. The repayment period for such loans is also shorter. In case customers borrow a large amount as a loan, it is difficult for them to pay it back due to the interest rate. Also no collateral loans are harder to qualify for. Customers with a bad credit record cannot procure loans which do not require collaterals very easily.
No collateral personal loans are provided within the Philippines for various purposes and these loans do not require a collateral. These loans come with its own set of benefits and disadvantages and customers opting for this type of a loan must ensure that no collateral loans are financially beneficial for them and only then go for it.