Personal loans pros and cons

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Pros and cons of a loan

When you’re trying to compare personal loans in the Philippines it’s important to consider all of the factors of the loan, not just interest rates. Banks often have charges for things such as late payments and even early repayment. They might offer free insurance in case you lose your job or they might be very flexible with payment terms or late payment options,  so you need to look at your individual circumstances and consider which loan might be best for you based on your current financial situation. Don’t  jump at the first low interest loan you see without examining all of the loan providers fees.

It might be difficult if you’re in need of an urgent loan to remain patient and do your research on all the different personal loans but it is vital you do so in order to have a clear understanding of the advantages and disadvantages of each provider. Sometimes the lower the interest rate is, the less advantages and flexibility the provider will offer you. On the flip side, sometimes a loan might have a slightly higher interest rate but offer many more perks such as the payment holidays, insurance and low fees for late payments etc.

Disadvantages of a personal loan

If you’re thinking of applying for a personal loan make sure you have a clear understanding of your finances, calculate your income and expenses so you know how much in monthly loan repayments you can afford. 

Loans can be very useful but you should always take any type of debt seriously, If you can’t pay your monthly payments each month the bank might charge you a penalty fee and/or a increased interest rate on the outstanding balance, you could even lose any assets you used as collateral when securing the loan. This is when and how people get into bad situations with debt, so always make sure you choose a loan amount and monthly repayment amount that you can definitely afford.

Once you have taken out the loan you’re now committed and you need to honour your repayments each month for the given time period until the loan amount and interest is paid off in full. If you decide you don’t want the loan anymore and you wish to pay the outstanding balance in one go your bank could (depending on the agreement) could charge you an early repayment fee.

If you’re looking to borrow small amounts of money over a short period you might want to consider low interest rate credit cards.

Advantages of a personal loan

In the Philippines there are lots of banks and lenders who issue loans, this high level of competition means if you have a good credit history you can often secure a personal loan with low interest rates and you can sometimes even get a lower rate than your initially quoted if you negotiate with the bank, this makes personal loans a very affordable method of borrowing money.

Loans are best used when you need to purchase something expensive that require upfront payment so that you can spread the cost of the item over a long period such as 1 or 2 years, making your monthly payments very affordable and predictable.  Making the same expensive purchase on a credit card could be very costly if you can’t pay back the full amount within a few months as credit cards have much higher interest rates on balances that are not paid in full each month. You can also usually borrow much more with  a loan than you can with a credit card, making personal loans a favourite for many borrowers. 

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