The coronavirus has significantly changed the way we do things, manage our finances, and live our lives. The pandemic has not only threatened our health but also economies, big and small. We can only explore more opportunities to survive, and personal loans are an obvious refuge for many who lost their jobs; also, financial relief for those who still have their work but are already worried they can be retrenched anytime.
The decision to apply for a loan is crucial especially if you are worried about repayments sometime in the future when you’re not even sure if you still have a job to hold on to. So, before jumping onto the debt trend amid the pandemic, here are a few questions you should be asking.
What to ask yourself:
1. What does my credit profile look like?
A credit profile is an important aspect of borrowing. Your credit score is an indication of your risk as a borrower. Now, it is time to evaluate how have you been doing about your debts for the past few years. Have you been paying on time? Do you have pending unsettled money obligations from banks? If so, then maybe you need to work a little more on your credibility. Check if your previous lenders have already tagged your debts as closed and settled. Otherwise, you still have to make yourself worthy of a loan in the eyes of lenders.
2. What am I borrowing for?
The purpose of the personal loan will lead you to handle the loan money right. Why are you borrowing? Will you use it for business? Will you be paying off other debts or utility bills? Do you just need money to improve your finances’ liquidity during the pandemic?
The reason for borrowing should also direct you to the right type of loan. For instance, if you’re looking at paying off unsettled debt, then take out a personal loan for debt consolidation. Most of the time, this facility comes with low-interest rates and longer repayment periods. On the other hand, if you aim to pay bills, then a short-term loan can do the relief. Online lenders offering fast cash can provide the money in an instant.
3. How much money should I borrow?
This is a question you should have thought of from the very beginning. This is related to the previous question that defines the purpose of the loan. Most of the time, borrowers are tempted to take out as much money as they could without actually planning their repayments.
Although lenders still have to decide how much money will be lent, the initial assessment of your need is in your hands.
If you’re borrowing from online loan apps, then expect that you could only borrow for an average of Php20,000 depending on your credit history. On the other hand, personal loans offered by banks provide the opportunity to borrow up to Php2 million.
4. Where should I borrow?
Again, the pandemic lures everyone to grab any loan opportunity regardless of where it is coming from. Sometimes, people get into fraudulent loan transactions because they fail to assess the reputation of the lender.
It takes some time and effort to find the best lender for your needs. Comparison platforms like GoBear, offer a chance for Filipinos to compare rates, loan tenor, and application process. The conscious effort of doing the math when comparing can often lead you to the lender with the most reasonable requirements and conditions.
What to ask the lender:
Lenders usually declare everything you need to know about the personal loan. There are terms and conditions every borrower should understand and agree with before processing the application. If are determined to apply for a loan, then here are a few more things you should be exploring:
1. What are the interest rate and fees?
During the pandemic, most lenders take the effort to call you and offer what they call VIP rates. That means you will be getting rates that are usually lower than their usual offer because you are a very important person with a good credit score. Sounds cool, but your part is to check whether the interest rate is an offer you should grab. Sometimes, lenders can extend rates for as low as 0.49% per month.
A smart borrower would not only settle with the effective interest rate but also other fees that are entailed with the loan application. Some lenders can be tricky at offering low rates with endless fees that will discreetly be increasing the cost of the loan.
2. What is the loan term?
How long will you be paying the loan? Two years? Six months? If you recently suffered from a job loss, then you might want to opt for longer repayment terms that offer low monthly repayment amounts. This will provide ample time for you to recuperate and rebuild your finances.
Bear in mind that long-term loans usually come with low interest but because the loan tenor takes a year. At times, the total cost of the loan seems to be just the same as other loans with high interest and shorter repayment periods.
Some lenders offer the lowest rates but with the longest tenor. You may want to negotiate to grab the offer but with shortened loan terms.
The coronavirus crisis has left so many of us with no choice but to grab every financial opportunity there is. The danger emerges when we fail to do our part in asking questions to define the personal loan we need. As a result, we end up enduring debt traps and ruining our credit profile.
The pandemic may have crippled our finances but it should not hinder us from getting back on our feet and succumbing to the impacts of the crisis. Asking yourself these questions make us the smart borrowers that we are. It will save us from a lot of guesswork and from falling prey to loan sharks and financial scams.