When you’re in a serious situation and borrowing from your parents or friends isn’t possible, your next option is to take out a loan. But before you start sending in loan applications left and right, there are a few things you need to know including the different types of loans available for you.
Secured Loan vs Unsecured Loan
The first thing you need to know is the difference between a secured and an unsecured loan. The importance of figuring out the difference between the two comes when you decide which of the two classifications of loans you can or should get.
A secured loan requires collateral before the funds are released to you. This requirement gives you better terms and interest rates from your lending institution. If you default on your loan (i.e. you're unable to pay), your collateral automatically becomes forfeited by the institution.
An unsecured loan doesn’t require any collateral. As an effect, however, your interest rates will likely be higher and your loan terms would be stricter because of the risk.
Common types of loans in the Philippines
1. Personal Loan/Cash Loan
Typically an unsecured loan that you (the borrower) can use for whatever you see fit (e.g. bills and utilities, medical emergencies, school tuition). Interest rates, terms and conditions, and repayment schemes are dependent on the loan provider.
2. Salary Loan
Also known as a payday loan, this is based on the gross amount of salary you receive from your employer each cut-off. The difference between a salary loan and a personal loan is that a salary loan usually offers smaller amounts of borrowed money.
3. Calamity Loan
An unsecured loan offered specifically to people who live in areas under a state of calamity. These are typically loaned through government agencies such as SSS and Pag-IBIG.
Tip: Pay your Pag-IBIG loans from the safety of your home with your Coins.ph. Just tap Pay Bills, select Pag-IBIG, input your details, and Slide to Pay.
4. Car Loan
This is a secured loan that allows you to use the lender’s vehicle until you’ve fully paid off the loan amount and the lender maintains the rights to the car as collateral. If you default on your loan, they can take away your car and forfeit your previous payments. Terms are typically 3 to 5 years with rates depending on the terms and conditions of the lending institutions.
5. Home Loan
Just like a car loan, home loans are secured loans where Pag-IBIG maintains property rights as collateral until you’ve fully paid the loan. This is specifically for borrowers who wish to purchase a residential condominium unit, land, or house and lot. Terms can be anywhere from 5 to 30 years with set interest rates.
6. Gadget or Appliance Loan
This is an unsecured loan specifically for purchasing electronics (e.g. mobile devices, gaming consoles, laptops) and appliances (e.g. blender, refrigerator, oven) if the you are currently unable to purchase in full. Companies like Home Credit typically offer this type of loan in shorter payment terms of 6 to 24 months.
Did you know that you could pay your Home Credit loans straight from your phone with Coins.ph? Pay Home Credit using Coins.ph.
7. Business Loan
You can start your dream business or expand an existing one with a business loan. This can come secured or unsecured, depending on factors like your credit standing, viable assets for collateral, the institution you’re borrowing from, and the amount you need to borrow. As such, terms and interest rates are dependent on your agreement with the lender.
8. Credit Card
One of the most common types of unsecured loans is the credit card. With a credit card, you can acquire various goods and services from a multitude of merchants and pay for these purchases in the next month. You can also use this for installment purchases with terms between 3 to 48 months. A word of caution, however: missed payments will incur high-interest rates plus surcharges.
Tip: Avoid late payment fees and penalties with your Coins Wallet. Using your Coins Wallet, you can pay your credit card bills anywhere and anytime, straight from your phone.
Security Reminder: Only borrow from a legitimate and legal lenders
While the process of borrowing from a loan shark may seem easier, remember that loan sharks are considered illegal businesses in the Philippines.
If you choose to do so, you would have no legal contracts or protection from unfair payment schemes due to the lack of formal records or against astronomical interest rates. Worse, you may even be threatened with harassment or violence if you happen to chance upon the more unsavory types of loan sharks. So be sure to only borrow from legitimate and legal lending institutions.
