4 Types of Loans: Which One Fits Your Needs?
More and more Filipinos have regular day jobs yet are still living from their paycheck alone each month. This is a reality many of us face, and sadly, our economy is not helping, considering the lack of real job opportunities in the country. This is the main reason many of us turn to loans to aid in our finances.
Loans can either be short-term or long-term, and secured or unsecured. With several types of loan available in the market today, do you know exactly which one matches your needs?
Let’s take a look at some of the most common loan options:
An unsecured loan is a financial loan that is not secured by any property or asset (real or personal) of the borrower. They can come in various forms, but the most popular one remains to be the “five-six”, or the short-term loan borrowed from the neighborhood loan shark.
The interest rates vary in these forms of loans, and may or may not be regulated by law. In the Philippines, the Usury Law has been suspended, so lenders can charge as much interest they prefer, which can be problematic for borrowers. The usual interest rate ranges from 5%-12%, and in the case of “five-six,” it can be as high as 20 percent.
A secured loan is another option where the borrower pledges something of value as collateral like real estate property or car. This is a very common type of money lending, also called “sangla” in the vernacular.
In this arrangement, the money is often used to buy another property of high value as in the case of mortgage loans. But, the financial institution is provided ample security like the title to the house and lot or vehicle; until such time that the mortgage is fully paid.
In this scenario, if the borrower defaults in the payment or is unable to pay for the loan, the bank or financial institution have the legal right to forfeit the property then offer it for sale to recover whatever is owed.
SSS or GSIS are companies handling the social welfare pension for employees coming from the private and public sectors respectively. If you are a member, rest assured that you’ll have a loan—provided that you have made a certain number of contributions that make you eligible for a loan.
Employees can take out salary loans from the SSS, which are payable between 1 to 2 years. The good thing about this loan is that if you are prompt in the repayment of your loan, you will be entitled to a much higher loan amount next time.
Employees can make use of salary and bank loans while those who need larger amounts can take on secured loans by using their house or car as collateral. But, for the ordinary citizen, pawnshops offer a quick solution for days when one falls short of cash.
Acquiring a loan from a pawnshop is fast and is one of the easiest ways to borrow money without undergoing the hassles of a credit check. The loan is always based on the total value of your pawned items which will serve as your collateral.
A typical pawn loan can have a period of 30 days to 2 months, plus you can have a one month grace period depending on the pawnbroker. Incidentally, Pawnhero, the first online pawnshop in Southeast Asia, offers the lowest monthly interest rate at only 2.99%.
In the past, only jewelry and precious stones could be pawned. But today, PawnHero allows you to pawn anything you own—from cameras, tablets, laptops, bags and more can be exchanged for money. Pawn loans are so convenient that even students who run out of allowance turn to their trusted pawnshop for a quick cash solution.
When choosing which type of loan is best for you, whether personal or pawn loan, always assess your ability to pay. If you want to go big time, go for the big bank or government loans. But, if you only need something for a quick fix and with minimal interest, a pawn loan may be a better alternative.
Remember to choose the best possible option that will not charge you sky-high interests and will truly help you meet your financial goals easily.