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How to Borrow Money Responsibly
This is not only for people in the Philippines. Although of course this is a website for people in the Philippines but these rules for borrowing money in a responsible manner are key guidelines that can be used across the globe. The interest rates, repayment terms and requirements will change from a Filipino bank to a Canadian bank for example, however, the tips on how to borrow money responsibly should never change.
When writing this article we assume that are in a current financial position that has forced you to borrow money. The first tip of course is to be sure that you really must borrow the loan. Borrowing money will always be more expensive than not borrowing money (obviously!) so that is commonly rule number 1. However, knowing that you are still reading this article we assume that you must borrow money.
Rule # 2: Be Honest With the Bank or Lender. Some people think that if they advise the bank that their salary is actually higher than what it is, then they will be able to borrow money. The truth is, any bank or lender who is reputable will be calling your HR Department to confirm that you are employed, how long your tenure is there and also to find out full details of your compensation package. Your HR Department is not going to continue with your ‘version of the truth’ because this would be providing false and misleading information to the bank.
If the bank determines that you have lied during the application process, they will quickly put a red cross next to your name for the current and possibly any future dealings you have with them.
Rule # 3: If you are approved for a loan, some lenders will tell you what your lending capacity is. That means, the lender or bank will themselves determine how much you are able to borrow as a maximum amount. This limit will be based on your salary minus other expenses that you have at the time of application. Some lenders may provide you option to choose your loan amount between a range of (for example only) Php60,000 – Php80,000. The third rule is then to only borrow the amount you really REALLY need. The loan repayments you will be required to repay will be much more affordable if you loan only Php60,000, compared to if you loan 25% extra! Only borrow what you absolutely need, do not be tempted to borrow additional funds for any reason.
Rule # 4: If you have other debts, do not try to hide them. This is another quick way to get a red cross next to your name. If you have another loan, credit card or other debt with a different bank in the Philippines. It is possible for the new bank you are applying for a loan from, is able to see what other debts you have. This credit check is done through the CMAP (Credit Management Association of The Philippines). The CMAP are the governing body who keep record of all credit cards, personal loans and housing loans across all banks and lenders in the Philippines.
Therefore, if you are caught out trying to mislead the bank, you will not be approved this time or any time in the near future. It is stated that the CMAP hold records for a period of five (5) years.
Rule # 6: Schedule, budget and meet your repayments. All banks, lenders and the CMAP will all keep records if you were able to meet your payments on time. Don’t worry, you can speak to the branch loan officer if you think you might be a couple of days late with some repayments, there is some flexibility at times. This will always be judged on a case by case basis. If you continue to miss your repayment due dates you run the risk of a permanent red cross being next to your name.
These are the 6 general rules to ensure you borrow money responsibly. When you are provided with the temptation of a personal loan, take a moment to consider these general tips.