Negosentro | Personal and business loans in the Philippines are pretty popular as both governmental and private organizations offer them to citizens. It’s quite an easy task to get quick loans same day even if your credit score is not perfect. Surely, you shouldn’t expect large amounts when you can’t meet all the conditions but you can hope for certain financial aid, anyway. Even housewives and unemployed people have chances to get money.
On the contrary, credit offers such as credit lines are delivered via governmental agencies and large banks, mostly. To get them, a Philippine citizen has to verify such things as stable income and good credit score.
Are there other differences between these types of financial support? And why loans are still the best choice for almost any individual and business owner? Let’s find out the answers together in this guide.
Learning Terms
First and foremost, we want to familiarize you with basic definitions. They are required for a clear understanding of the differences between loans and credits. Thus, let’s talk about these terms in more detail.
Loans
Long story short, most of the loans in the Philippines are simple lump sums that are provided to a borrower in cash or as a money transfer to a bank account. Loans must be repaid over a given period of time, including the lender’s interest – a certain percentage of the initial amount. Exact sums and repayment terms vary greatly from P1,000 for 7 days up to hundreds of thousands of pesos for several years. Usually, loans feature lower rates than credits.
Credit Lines
This type of lending features separate revolving accounts given to a borrower. Using credit lines, clients can spend credit money up to a specified limit without strict repayment conditions. Usually, lenders require small monthly payments that don’t have to cover all spendings. Thus, the debt accumulates and leads to significantly higher rates as a borrower fails to repay full credit amounts. Still, this option is more flexible than loans.
Top 3 Reasons to Choose a Loan
Speaking about the advantages of personal/business loans over credit lines and credit cards, we can name three major points. Surely, everything depends on the chosen lending company but this situation is traditional across the Philippines. Loans are more affordable for ordinary people that don’t want to interact with banks or large financial organizations. Simultaneously, credit lines are suitable for employed persons who want extra money for everyday use.
Hence, let’s look at the advantages of loans.
1. Different Amounts, Terms, and Low Rates
To begin with, loans provided by governmental and private companies have extremely wide ranges related to amounts and interest rates. You can get as much as P2,000,000 for up to 120 months. The lowest amount in banks and large companies is P50,000 and the shortest term is 6 months but various private and peer-to-peer lenders offer from P1,000 for 7 days.
Interest rates are also really different. They start at 6% per month but may go up to 36%. It often depends on the amount and term as a lot of private lenders feature daily rates that are from 1% to 1.5%, usually. Still, compared to credit lines, these rates are lower so they allow borrowers to consolidate debts under better conditions.
2. No Hidden Fees
Banks issue credit cards that come with different fees, including annual charges, over-the-limit fines, and late payment penalties. As well, they may indirectly increase actual interest rates when a client doesn’t return money for a long time. Companies that issue personal loans usually have only interest rates and, often, late payment fees. But they always specify these conditions and rarely allow customers to accumulate debts without regular repayments.
3. More Favorable Requirements
Overall, lending teams with personal/business loans feature better conditions for both private clients and companies. For example, only borrowers with perfect credit scores are eligible to apply for the best credit cards while loans are available even for unemployed citizens of the Philippines. Usually, loan applications require fewer documents than credit lines.
As well, borrowers always have different options when it comes to loans as they can choose between secured and unsecured offers provided online, in banks, governmental firms, private companies or via P2P networks. Finally, by getting a loan, you receive the total lump sum so it’s convenient for one-time big payments.
Cases to Get a Loan Instead of Credits
Generally, there are four conditions under which you should opt for loans but not credit cards:
- You want to consolidate debts. By getting a loan with a lower interest rate than your actual debt, you can return the previously borrowed money and, thus, refinance it.
- You want to cover significant expenses. When you have to buy costly products or services, invest in a business or cover accidents, a loan is the best choice.
- You don’t have a perfect credit score. In this case, look for private lenders that feature lower requirements for clients with average scores.
- You can make regular payments. This is the only important rule you should know. Without monthly repayments, you will face certain problems with lenders.
At the end of the day, personal and business loans are more suitable for large expenses instead of small daily operations. With a loan, you receive the total amount at once and can do whatever you want. Additionally, you have good conditions and convenient repayment schedule that doesn’t allow you to accumulate debts.
The Bottom Line
Strictly speaking, loans and credits are similar by nature as both services refer to borrowed money with certain interest rate. However, loans are better for clients who want to get all the amount at once and don’t want to face high repayments with hidden expenses. Nevertheless, each case is unique so we suggest carefully exploring all the available options, terms & conditions, requirements, and potential consequences.
