Are Personal Loans Bad in the Philippines

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Businesses often apply for loans to cover specific business expenses or to enable a healthy cash flow. But what about personal loans? Are personal loans bad in the Philippines? Typically, it’s a bad idea to ask a bank or lender for a loan when a person can’t fix the cash problem. If you don’t fix your bad financial habits, a loan won’t help. But this issue is not the main concern when it comes to personal loans bad in the Philippines. Check out the article to learn more about personal loans and whether it’s a good idea to apply for a personal loan. 

What is a Personal Loan?

Before we dive into the topic of are personal loans bad, let’s check the definition of the term. A personal loan is a money someone borrows. Typically, people borrow money from banks or other similar financial institutions. In some cases, residents borrow money from businesses, online lenders, credit unions, etc.

A person may utilize a personal loan to consolidate debt and cover specific expenses, such as home renovation (repair), wedding reception, etc. Typically, lenders charge interest fees for personal loans. Its size and the fee depend on the money borrowed by a person.

Are Personal Loans Bad in the Philippines
Are Personal Loans Bad in the Philippines

Types of Expenses Covered by Personal Loans

Typically, people apply for personal loans to cover the following expenses:

  • moving costs (from one city to another, from apartment to apartment, etc.);
  • medical bills;
  • weddings;
  • funerals;
  • home repair;
  • debt consolidation;
  • vacation expenses.

But why is a personal loan different from any other type of money borrowing. For example, when you buy a home or a car, you may also borrow money. But why not for a personal loan? Typically, a borrower may use a personal loan for various reasons. The list above reflects these reasons, and the list can be extended. But a car or apartment loans are used only to cover the purchase of a car or a place to live.  

How Personal Loans Work in the Philippines

A borrower must choose a lender to apply and get money. As mentioned, borrowers may choose from banks, financial institutions, and even online lenders that are popular these days. Then the borrower submits an application in person or electronically, depending on the chosen type of lender.

The lender must review the application and check whether the document is valid. Then the officer decides to approve or decline the application. If an officer approves the application, then the borrower gets the terms and conditions that must be met.

The person applying must be very careful and read the terms. Upon reviewing the document, a borrower accepts or rejects the offer. The last step is finalizing the document. It depends on the lender. If you choose an online lender, the process is relatively easy. 

Usually, upon the finalization procedure, the borrower gets money directly to their deposit in a bank or cash. Upon getting money, the borrower may use the money as they wish. However, the borrower must comply with the terms and conditions of the agreement. For instance, to pay an interest rate or make specific monthly payments.

Note: defaulting on a personal loan may lead to bad consequences. Mainly, it ruins a person’s credit score. It could damage a personal loan bad Philippines score and disable the person from borrowing money in the future. 

Moreover, if it requires collateral (a car, apartment, etc.), a borrower could lose this collateral. 

Are Personal Loans Bad Philippines?

Typically, basic needs and expenses should be covered by a monthly income. But this option may not always be available in the Philippines. If that’s the case, residents in the Philippines often use the services of lenders. 

The Philippines National Economic Development Authority (NEDA) states that a family (five members) should make at least PHP 42,000 to have a comfortable living. Naturally, people may spend less, but it’s not always possible.

For example, the Philippines residents need money to obtain an education, pay for their apartment, and even cover medical bills. In that cases, a regular income is not enough. That’s one of the reasons why many Filipino residents apply for personal loans.

But is it a good idea given the rumors these loans offer bad terms? Typically, borrowers have to pay an interest rate apart from giving back the money borrowed. Usually, the rate is around 3%. 

Suppose a person borrows PHP 20,000 to cover some basic expenses. The monthly interest rate is 3%, so instead of paying back PHP 20,000, the person has to pay:

  • PHP 20,000 x 0,03 (3%) = PHP 600.

So, the entire amount to pay back is PHP 20,600. A person is overpaying by a lot. It’s a different type of loan from the one you get to pay for an apartment. Usually, the interest rate applies for a year. But when borrowing money for personal reasons, residents often have to pay a monthly interest rate. It’s one of the reasons many see personal loans bad Philippines. 

If a borrower isn’t careful when reading the agreement, they may sign for a loan with a daily interest. That’s why it’s critical to use only valid lender services. More details on reliable lenders are described further in the article. 

Are personal loans bad or good in the Philippines
Are personal loans bad or good in the Philippines?

Consequences of Failing to Pay Back a Personal Loan

Before we proceed with the best lenders in the Philippines, let’s check the consequences of defaulting on a personal loan. As you figured, defaulting on a loan means failing to pay it back. 

Every person understands that this situation impacts the credit score. But what other consequences may one face for defaulting on a personal loan in the Philippines? Let’s check some of them.


If you borrow money and the procedure requires collateral, not paying back means the lender might take this collateral. Typically, a car or a home serves as collateral. That’s why it’s crucial to pay back what you borrow. 

The issue is that many borrowers take new loans to cover previous ones. As a result, they pile up, and the borrower finds themself in a horrible financial situation. If you choose to take a loan, make sure you can pay it back without applying for new ones to cover the current ones.

Penalties and Fines

When borrowers fail to pay back, they may be forced to pay penalties and fines. The penalty is described in your agreement when you borrow money.

Suppose you borrowed PHP 40,000 at a 4% interest rate. The agreement states you must pay back the full amount of money within a month. According to the agreement, if you fail to comply, you have to pay a late payment fee of 7% to 10%. As one might imagine, the amount owed drastically increases. Not to mention penalties for not paying on time.  

Closed Accounts & Debt Collection Agencies

Typically, if a borrowers fail to return the amount borrowed, all other accounts in that bank will be closed. Moreover, the bank or a financial institution may sell your debt to a collection agency. A collection agency puts a lot of pressure on people, so they return the debt.

Bad Score

It’s an obvious consequence, yet people don’t seem to take it seriously. Suppose a borrower has several debts and can’t pay them back. The person needs another loan to cover the existing ones. 

But as a result of defaulting on a personal loan, their credit score is low. A bank may decline this person’s appeal for another loan based on their credit score. As a result, the borrower can’t pay back other loans, so the situation is worsening every month. 

Where to Apply for a Personal Loan with Bad Credit Philippines?

Here’s a list of reliable lenders in the Philippines:

Even though these mentioned lenders are trustworthy, never forget to read the agreement. Ensure you 100% understand the terms and conditions of the loan. If you don’t understand something, ask before signing.

More articles about personal loans:

Final Thoughts About Personal Loans

It’s also a great idea to review your spending habits. Perhaps, you have a few subscriptions you don’t necessarily need. For instance, a Netflix subscription is not a critical expense, and you can cut on it while having financial troubles.

The best idea is to list your critical expenses in a column and how much money you need to cover them. Then check your income and determine if you can cover your expenses without applying for a loan. If it’s impossible to fix your financial situation without a loan, go for it. But remember: spend money wisely and make a financial plan. Consider reading articles about financial planning since it’s a useful skill that every person needs.

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Linda Carters/ author of the article

Financial Journalist on Advance Loans Philippines with 8 years experience in a Fintech niche.

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