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Financial Essentials

3 Things You Need To Know Before Applying for a Loan

Let’s be honest. Achieving financial stability is no easy task. That’s why taking steps to secure yours and your family’s future is important. Be it investing in your child’s education or starting up the business you’ve always planned, this often comes with a price but can generate bigger rewards in the future.

 

Thankfully, there are ways you can take to leverage in reaching your financial goals. Taking on loans is a relatively easier way to finance your investments and secure your future. But before you jump straight with applying for a loan, here are some of the few things you must know about them.

Kinds of Loans

It’s important to know the advantages and disadvantages of each type of loan for you to identify which one will suit your needs. Some of the most common loans are:

1.     Secured loans

  • Requires you to pledge a collateral. A collateral is the lender’s guarantee in case the borrower fails to pay off the loan. E.g. car, house, savings accounts
  • Often comes with lower interest rate

 

Examples of secure loans: title loans, home equity loans, pawn shop loans, secured personal loans

 

TIP: Taking secured loans runs a risk of you losing the property you offered as collateral. Make sure to keep up with payment schedules to avoid this from happening.

 

2.     Unsecured loans

  • Does not require any collateral
  • Commonly used for a variety of reasons. E.g. weddings, education, home improvement
  • Best for those who want to pay off high-interest credit card debt
  • Example of unsecured loans: Personal loans, payday loans, credit card cash advances

 

TIP: Taking unsecured loans requires responsibility. Even if unsecured, this loan will still have an impact on your credit score, which would determine the ease of your access for more capital moving forward.

Credit Score

A credit score is one’s ability to pay for credit on time. Your credit score is not just based on your income, assets, age, gender, affiliations, and non-credit banking information such saving accounts, checking accounts, etc. It is primarily calculated based on your credit payment history, the amount you owe or credit utilization ratio, length of credit history, types of credit used, and new credit.

 

Credit scores usually range from 300-850 with the latter being the highest. If you have a higher credit score, the better chances you have of having your loan approved. Banks and other financial institutions use credit score to identify whether a borrower is eligible for a loan or not, that’s why it’s important to keep your credit score as high as possible.

Fees

Naturally, borrowing money comes with necessary charges and fees. These fees are allotted for certain services you avail when getting a loan as well as to compensate lenders for the risk of lending you money. It’s best to know the additional expenses that come with borrowing money. Here are some of them:

 

  1. Processing fees - the amount of money lenders charge in exchange of processing your loan application

  2. Monthly interest - this is the interest rate applied to the total amount of money you borrowed and unpaid fees and charges. Borrowers pay for this until they have paid their loan in full.

  3. Documentary Stamp Tax (DST) - a government mandated fee deducted from the loan proceeds. DST requires P1.50 per P200 of a loan amounts exceeding P250,000. Loan amounts below P250,00 are exempt from DST.

  4. Disbursement fee - a fee charged each time the loan amount or a portion of it is given to you. To avoid additional disbursement fees, cash out your loan proceeds at once.

  5. Late payment and early payment fees - Lenders usually charge 3%-4% of the overdue amount or P500, whichever is higher for late payment. In the Philippines, lenders usually charge 4%-8% of the outstanding balance for early payment fees when you pay for your loan earlier than your tenure.

 

Overall, getting a loan entails certain responsibilities that can be detrimental when overlooked. It’s best to do your research first to get an idea of what are the things you need to prepare for when getting a loan.

At CIMB Bank Philippines, you can loan as much as P1 million with ZERO PROCESSING FEE and NO EARLY SETTLEMENT FEE. You can even get initial approval in just 10 minutes. Take a step towards your goals! Apply for a Personal Loan today!