How to Use Credit Line in the Philippines

Digido Credit Line Philippines
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0% interest rate
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5,99% per month
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3% - 10% per month
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3,49% per month

In business terms, it means a revolving credit line. This means having a bank account, and they will lend money if you needed.

When people ask what a revolving loan is in the Philippines, they mean a business credit line. It’s like a personal credit card. However, the credit line is for business.

The credit line is revolving. This means that you have a maximum amount that you can borrow. After you pay off the amount owed plus interest, the bank will top up the amount you can borrow.

A credit line is what businesses use to cover their working capital. They use other people’s money to pay for their own business needs, such as keeping inventory.

Credit Line Philippines
Credit Line Philippines

Here are some of the basics of a credit line:

  • You have the maximum amount of cash you can borrow;
  • Credit is flexible;
  • Payment terms vary; they can be paid in whole or in installments;
  • Have an interest in what you owe. 

It’s different from a loan, but it’s also a loan if you think about it. It is like a credit card, only for business structures. You can withdraw money as long as you have funds from your credit line that you have not used.

Credit Line Deeper Definition

When granted a credit line, borrowers spend the money using special checks or debit cards issued by the Lender. The lender agrees to pay any bills or transactions up to the credit limit. Since the credit line in Philipinnes is secured, interest rates are lower than unsecured loans. Companies commonly use this type of loan as they can use some of their assets to secure the loan.

Closed loans and lines of credit must be repaid in full at the end of the loan term, along with accrued interest and any fees such as maintenance. Closed credit loans are standard for homes and vehicles.

A credit line is flexible because it allows you to access money instead of taking out a lump sum loan when you need it. A credit line can be an ideal tool for small startups looking to build a good credit history to get loans in the future. However, payments must be submitted on time.

The cost of a credit line is one of its disadvantages. In most cases, advance payments and interest are charged on the loan amount.

In most cases, lines of credit are requested to alleviate cash flow problems that may result from offering goods or services to customers on credit. A credit line helps provide a business or individual with the working capital they need while waiting to be received from clients.

Secured Loan Definition

A home equity line of credit Philippines is sometimes referred to as a term loan because the loan amount is provided as a lump sum, and the repayment is fixed over time. It has a fixed interest rate and a set payment amount every month.

It is also a type of the second mortgage because you can make payments over some time using your home as collateral.

Secured Loan Disadvantages 

The downside of having your home as collateral is that you risk losing it to foreclosure if you can’t pay your loan. You need to pay off the loan if you want to sell the house, just like a mortgage.

If you don’t have enough net worth, you’ll get approved for a smaller loan amount, or you won’t get approved.

Long-term repayments can also be a disadvantage, especially if your equity loan is to fund a small or low-cost business. You will be paying years of interest and a mortgage for something that can be quickly repaid in a few months.

Equity Loan Maximum Ammount

Depending on how much equity you already have, you can borrow with an equity loan. The higher the capital, the more considerable loan amount you can apply for.

Using the house as collateral is a more secured type of loan. In addition, it is easier to apply for and get approved for a loan.

Applying for an Equity Loan in the Philippines?

You can get a loan from your bank or any other financial institution that provides this type of loan.

Security Bank equity loans offer low-interest rates starting at 7% and are repayable over five years.

Maybank Philippines allows you to get a loan up to 60% of your home’s appraised value or up to PHP 5,000,000, whichever is less.

You can take out a mortgage loan for at least PHP 500,000. If your collateral is an apartment, townhouse, or apartment building and a lot, you can get a maximum repayment term of 10 years.

Mortgage requirements:

  • valid identifiers
  • recent photos of the borrower
  • correctly completed home loan application form
  • employment certificate
  • income tax returns for the several years;
  • financial reports
  • business registration or permit.

If your mortgage is a house and lot or apartment, you will also need to provide a copy of your tax return, proof of transfer of ownership, or proof of condominium ownership.

How Do Personal Loans Work in the Philippines?

When you take out a personal line of credit Philippines, you agree with Bank and promise to repay your loan within an agreed period (also known as loan term or loan term). If you take out a secured loan, you will also need to post collateral.

To repay your loan, you make monthly payments for the loan term until you have repaid both principal and interest in full. 

Fees are different in banks. Security Bank’s loan has an interest rate of 29.48%, and another personal loan has an effective interest rate of 26.62%. To find out the latest rates, use a loan calculator.

The main requirement for obtaining a personal loan is proof of income, such as a payslip or bank statement showing a steady stream of income for at least six months. Other requirements may vary depending on the supplier; you may need to fill out some forms and even identify a co-borrower if you are applying from a non-bank lender. Another essential requirement is proof of address – this could be a utility bill in your name or a bank statement. Also, prepare valid IDs for validation. 

A credit line agreement sample from the Philippines is easily found on the Internet.

How Does Credit Limit Works Philippines

“How much credit limit can I get in the Philippines the bank customer can think. Loans have fixed amounts and terms, and the credit limit on the card is not set for a certain period. This means that you can use your card as long as you regularly pay your credit card bills and do not exceed the credit limit.

When you reach your credit limit, the bank may reject your subsequent purchases with your card or charge you an over-limit fee until you have paid off at least part of your balance.

Setting Credit Limits?

You can control your credit limit on a secured credit card as it equals 80% to 100% of your security deposit to the issuing bank.

Things are much more complicated regarding unsecured or traditional credit cards. Credit card providers decide what credit limit customers can have on their credit cards. But banks do this for a reason.

Factors Affecting Credit Card Limits

Banks conduct a credit assessment to decide how many loans to give to each applicant. They consider many factors to get a complete picture of your financial condition, accurately determine your creditworthiness and set a reasonable credit limit.

Credit history

Your credit history shows how disciplined you have been in managing your debts and maintaining a good credit history.

You’ll probably get a higher credit card limit if you’ve been a good borrower. But if you have a bad credit history (for example, late and missed payments, overdraft on other cards), banks give you a lower credit limit.

Lack of credit history will result in a low card limit, as banks do not have credit data that can be used as a basis for calculating a credit limit.

Income

Your wages, benefits, and other sources of income shown on the income documents (spending slips, income tax returns, certificate of employment, etc.) that you have submitted to the Bank are also used to determine your credit limit. High income increases the chances of getting a high card limit. The income does not guarantee to approve a high credit limit. 

Debt to Income Ratio

Banks check your debt-to-income ratio to determine the limit. They look at your loans, mortgages, and other credit cards to see how much your income is needed to pay off your debts.

To calculate your debt-to-income ratio, get your total monthly debt payments and divide them by your gross monthly income.

You’d like your debt-to-income ratio to be low (ideally 12% of your income or lower) because that results in a high credit card limit. If yours is high, you are likely to get a low credit limit even if your income is high.

Increasing Credit Line 

You are not stuck with the credit line forever. The various ways you to get a higher credit limit are listed below.

Manage your credit card responsibly.

Banks check the creditworthiness and adjust card limits accordingly. If you have been a responsible borrower for several months, your credit card provider may increase your credit limit, reflected on your account statement.

  • Ask the Bank to increase the credit limit

Call the customer service hotline if the credit card provider increases the limit. The Bank will update your income and give the supporting documents to assess your credit limit. Some banks, BPI, allow customers to request a card limit increase through BPI Online Banking. You can access the Credit Card Services feature to request a higher credit limit.

  • Increase your security deposit

If you have a secured credit card, add more money to your bank deposit. But check with your bank for the exact procedure and the maximum credit limit allowed on your card.

  • Have more than one credit card

Get another credit card from your current issuing Bank or another provider if your request is denied. This gives a higher credit limit across all your credit cards.

Revolving credit lines in the Philippines is possible for any of the following reasons: 

  • you report a reduction in your income. 
  • If your lender thinks your reduced income risks payment ability, it cuts the limit to reduce its risk. 
  • You do not use the card or use it only occasionally.

Credit Line and Online Loan

how to apply digido loan online
Digido Credit Line

You get a loan at a time. If you apply for a 20,000 peso loan, a bank or financial institution will provide you with 20,000.

You will pay what you owe monthly – you must pay the principal and interest. Once the payment is completed, you will not be able to receive PHP 20,000 again. You must apply for the loan again and undergo the same approval process.

A business credit line does not work that way.

It goes like this: you have a revolving credit card. This means that you have a physical card that you can use to withdraw money and make purchases.

After you have paid what you owe, you can withdraw the money again. There is no need to go through the same application process. There is no need to sign documents or resubmit them.

Credit Line and Credit Card

Find out if the line of credit is cheaper than a credit card. Some revolving lines of credit have a credit card. The principle of work is the same.

All credit cards are lines of credit, but not all lines of credit are credit cards. Some lines of credit are not issued to you. There is an agreement with a third party.

You run a logistics company like 2GO. You have over 1000 trucks and motorcycles delivering packages. It would be burdensome to give money to your drivers or request a requisition of gas money. Instead, you turn to a significant gasoline company like Petron. Petron will provide you with a credit line. Truck and motorcycle drivers can now refuel at any Petron gas station. They have to sign a document or something like that. At the end of the month, Petron will send you an invoice, and you will pay it.

Credit Lines Pros and Cons

Here are the benefits of credit lines:

  • Quick access to money
  • Convenient to use
  • Digital transactions are unlikely to lead to fraud

Here are the cons of a credit line:

  • there is a limit to what can be borrowed;
  • have high-interest rates;
  • some lines of credit require collateral.

Summary About Credit Line in the Philippines

Credit cards and a business credit line are essentially the same. They give you easy access to cash when you need it, but there’s the loan’s interest rate business line. You have a maximum limit on the amount you can borrow.

Of course, the interest may be higher, but it is better to pay this interest than stall your business. If you need a credit line, talk to your local banks and ask for the process – they may need a few documents from you before they can issue you an unsecured business credit line.

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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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