At some point or another in life, we have been in need of some quick cash. Maybe for a vacation that you just had to take or maybe to go abroad for a friend’s wedding. When your meagre savings can’t cover the expense, you might have considered getting yourself a personal loan. Personal loan is a popular choice among Filipinos who are in need of cash for an immediate need. The best part about a personal loan is the fact that it is quick and the fact that you do not need a collateral to get it. However, since the lender has no guarantee (nothing that he can repossess in case you do not repay the amount) it is more risky for him, which means that the interest rate that he will charge will be higher. There are pros and cons when it comes to getting yourself a personal loan. You will have to figure out for yourself if it is the right option for you. However, if you decide to go for it here are some tips that you can use to get approved and improve your chances of getting terms that are favorable to you.
Decide What Sort of Personal Loan You Need
Typically, when people talk about personal loan they would be referring to unsecured, closed-end installment loans. However, in financial terms, everything from credit cards to auto loans are personal, and not business. When you are applying make sure you know and understand the type of loan you are applying for. In case you are not eligible for a typical personal loan, you may go for a secured loan instead. This means that you will need to put your property, car or some other valuable asset as collateral. Putting an asset as collateral will qualify you for better rates. However this means that in case you are unable to repay the amount on time, you will lose the collateral.
Check Your Credit History
Lenders will check your credit history to see if you are a responsible candidate to be borrowing their money. They will judge you based on your past financial activities. If you have been punctual with your payments before, they will assume that you are a good candidate.
In Philippines there is no centralized credit reporting like in the USA. Thus in Philippines lenders look into internal database (record of past and existing clients’ handling of both lending and deposit accounts) or external sources. Typically, the external sources that Filipino lenders go for are the CCAP C4 (Consolidated Cancelled Credit Cards) negative file or the Bankers Association of the Philippines Credit Bureau.
Until a centralized credit reporting system comes up in Philippines, in the form of the Credit Information Corporation (CIC), which will be a centralized national credit bureau, Filipinos will have to rely on the already functioning TransUnion, which is one of largest credit reporting agencies. TransUnion is partnered with BPI, Metrobank, HSBC and Citibank. This partnership has shaped a centralized credit-information system. However, this means that all the banks that are not partnered with TransUnion don’t have access to the reports they provide.
How to get yourself a good credit history?
- Focus on building a good credit history early on: The easiest way to build a good credit history and proving to lenders that you are a responsible person is by getting yourself a credit card and making regular payments on it. Go online and find yourself a good starter credit card to begin. Make sure that you stay disciplined so that you end up paying as little as possible as monthly interest.
- Avoid missing payments: Simply by paying on time and avoiding missing payments will make sure that you have a respectable credit history.
- Jump back on the wagon if you have missed any payment: Practically, it is sometimes unavoidable that you miss a payment here and there. The best thing to do then is to catch up as soon as possible so that your credit history does not reflect badly on you. As long as your payment is not overdue by more than 30 days, your credit history won’t be affected because it will be assumed that the missed payment was a mistake; that you either forgot to pay it or the billing payment was not received on time.
- Keep debts low: Your credit history will be affected negatively if you have a lot of revolving debt. Thus make it a point to reduce debts. In the US experts suggest that debt-to-credit ratio should be kept below 30%.
- Be consistent: There is no quick fixes for a great credit history. You will have to keep at it for many years to see results.
Find The Perfect Lender For You
Just because you may not have the perfect credit history does not mean that you should settle with any lender who offers you a loan. There are many lenders out there who specialize in high-risk borrowers. You should do your homework well before settling on the perfect lender for you who will offer the best rate. You can even find lenders online who specialize in low-credit borrowers.
Choose trustworthy online lenders
The best thing that you can do is shop for your personal loan online because you can compare many at one go instead of going to separate offices in person. Also the fact that the operating costs of online lenders is lower means that you will be getting lower rates.
However, you should be careful when selecting online lenders. Make sure that they are licensed and check out the rating and reviews as well.
Keep an eye on your Debt-to-Income Ratio
Do not get greedy. When you apply make sure that you do so for as little money as possible. Also make sure that you do not under/over-report your income. Even if you have a few credit indiscretions or credit score which is on the borderline, lenders will overlook it if your income is substantially high when compared to the amount you wish to borrow. Do not forget to provide your pre-tax earnings unless you are specifically asked otherwise. Also mention all sources of income. It is also a good idea to mention your spouse’s income.
Sometimes you will not have to provide documents to prove your income level. Thus it is easy to get carried away and exaggerate the numbers. Remember that this is could lead to criminal charges if you are unable to pay the interest for any reason. Thus, be transparent and honest about all your income.