• Salary Loan Vs Personal Loan – Do You Know What is the Difference?

    Most often, a lot of us Filipinos find ourselves in extra need of cash to take care of financial requirements that keep cropping up from time to time. We always need that extra money to pay off for emergencies and immediate short-term needs.

    There are two kinds of loans that help us cater to these kind of requirements and are most frequently applied for - Salary Loan and Personal Loan.

    Most of us mistake both these loans to be the same and therefore, it is very important for us to educate ourselves on what each one is, what they are meant for, how each of them work and what their main differences are. With this knowledge we will be able to understand which one we are eligible to apply for, which one will suit our requirement the best and which one will prove to be most beneficial to us.

    What is a Personal Loan?

    The concept of personal loans is quite popular in the Philippines as it is very easily available and all local and international banks and financial institutions offer this type of loan. It serves the same purpose as a salary loan.

    What is a Salary Loan?

    As the name suggests, this loan refers to taking a loan or borrowing from a government institution like Pag-IBIG and the Philippines Social Security System (SSS) to which we have been contributing to, as an employee to our employer from the time we started work or from our employer itself.

    This loan is usually taken for very short-term needs such as shortage in tuition fee funds for children, basic house repairs, medical emergencies or special occasions that call for celebrations.

    Here, the terms of the loan usually depend on the lender. For example, the Philippines Social Security System (SSS) allows us to take a one-month salary loan which is the equivalent to an average contribution we must have made in the last 12 months of employment.

    An interest fee of 10% is charged on the loan annually. To be eligible to take this loan, we should have been contributing to the SSS for a total of 6 months within the last 12 months. We are eligible and qualify to take the loan even if we are not employed as long as we are posting these monthly contributions on our own.

    The one-month and two-month salary loans can be repaid over 2 years spread over 24 equal monthly installments.

    It is fairly advantageous to get a salary loan from Pag-IBIG or the SSS because the terms are much more flexible and the rates of interest significantly lower.

    We can also inquire with our employer about the salary loan offers that they have for their employees so that we can compare and get the best deal for ourselves. If our company allows new employees to take this loan, then this option is very beneficial if we haven’t already posted 6 contributions to the SSS yet.

    Also, it is noteworthy to remember that with a salary loan, repaying is a lot more easier if we are currently an employee. All monthly deductions towards the repayment of the loan will be deducted from our salary and our company will be responsible for handling it.

    Salary Loan vs Personal Loan - Do you know what is the difference?

    • A personal loan can be requested for and availed from banks and financial institutions rather than from government institutions and our employer. Also, the repayments will not be deducted straight from our salary but have to be repaid on our own on a monthly basis.
    • Personal loans also come at high rates of interest compared to the salary loan.
    • Some people who are still repaying their salary loans and have urgent cash requirements again, opt for a personal loan. For a personal loan we have to submit the necessary documents to the bank . After we have submitted the mandate documents, it will be processed and evaluated by the bank or financial institution before it gets approved.
    • The amount we want to take as loan will wholly depend on our current income which will be substantiated through our salary slips, thereby acting as proof of income.
    • These loans can be repaid over a tenor or 12 to 36 months depending on the convenience of the borrower. The rates of interest on personal loans in the Philippines usually vary from bank to bank. It is different in every financial institution. However, according to banking laws in the Philippines, borrowers are not allowed to take loans that require them to pay more than 30% of their monthly income towards the monthly loan installments.
    • Personal loans are available to self-employed individuals and Filipinos working overseas as well.
    • Being educated about the basic information on these two most popular types of loan will only enable you to review which one suits your requirement the best for the situation at hand.

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