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Due to the ongoing economic crisis caused by the Covid-19 pandemic, borrowing is set to increase quite significantly over the next 12 months. This means many people who have never used credit before will be considering personal loans or salary loans as a way of finding the funds they need. For those who are new to this aspect of personal finance, the array of lenders and different products on offer can be a little overwhelming. Here’s Asteria’s list of simple Dos and Don’ts for first tie borrowers.


Ask Yourself if You Really Need a Loan?

You might be surprised to read this on a lender’s website, but this is the first thing any responsible loan provider will recommend that you do. If you have other options available, such as getting a second job, selling unwanted goods or starting a side business from home, it makes sense to explore these alternatives first. If you have exhausted all of your other possibilities and you are sure that a loan would be the best course of action, you can start looking around to see what is on offer.

Take Your Time

Like every industry, the personal finance sector advertises with a sense of urgency to encourage more engagement from their customers. It is important to be aware of this and to make sure you explore all of your different options, rather succumbing to any overly advertising copy are offers that seem too good to be true.

Check Your Credit Rating First

It is now possible to get a detailed breakdown of your credit rating, often for free. Lenders in the Philippines and other parts of the world always use credit checking agencies to ascertain whether or not you are a customer that may pose a significant risk. Essentially, the more financially stable you are considered to be, the better the offers you are likely to be given when submitting loan applications. Knowing whether you have a poor, average or good rating can be a powerful tool when it comes to choosing who you are going to borrow from. Not all lenders are created equal and though this may seem like an essential part of the process to many people, it is still something that a lot of first-time borrowers will overlook.

Take Time to Decide the Amount You Need

Spending some time calculating exactly how much you need to borrow before you make an application is only common sense. Never be tempted to “round up” your loan for the sake of it. You will need to pay back everything you have borrowed, with interest, so only ever take as much as you think you will need. Lists based on priority are a good first step, followed by a careful review, making sure to cut anything you think you can realistically live without.

Plan How You Will Repay the Money

You need to make sure that you have enough money coming to cover basic living costs and loan repayments. If you have no way of generating an income, borrowing is not a good option for you. Have a realistic plan of how you plan to pay back what you have borrowed. This could be a portion of your salary or even projected earnings if you are self-employed. Account for periods of sickness or unexpected events that may result in a loss of earnings.

Look for Offers and Promotional Deals

Loan providers are extremely competitive, and the most well-established firms will have things like introductory rates for new customers or even several months of grace before you need to make your first payment. Even if the amount and annual percentage rate on offer seems to be the same across the board, the chances are you will be able to secure yourself a better value deal if you take some time to look around.

Understand Interest Rates

Generally, personal loans are offered at a fixed rate of interest, which is the amount you agree to pay in addition to the amount you borrow when you sign up. This will remain unchanged in most circumstances, but it can go up dramatically if you miss repayments frequently. Always check to see what the rate of interest will be per month and factor this to your repayments.


Take the First Loan You Find

When you need to borrow money, you may feel anxious, which can lead to poor decision making. Taking the first loan you find might feel like a quick fix, but it will not generally do you any favours. Take your time and only sign up when you feel ready.

Borrow Too Much

Anything you borrow needs to be repaid over a fixed amount of time. Be mindful that a larger amount will mean substantial payments every month for a significant amount of time. If you are not able to earn enough to live comfortably, borrowing too much simply cause you more problems. Always be conservative when you can.

Use Salary Loans Incorrectly

Salary loans in the Philippines are a part of life for many families, but they should never be used for things like one off large purchases or unnecessary luxuries. They are designed to supplement your income for a short amount of time, rather than as a means of long-term credit.

Take Out Too Many Loans at Once

Though you may still be approved for multiple loans, the impact this has on your credit rating will be quite severe. Credit ratings agencies consider multiple loan application in a short space of time a negative thing and a good indicator of a high-risk customer.

Borrow when you are already in debt

If you can avoid it, pay off any existing debt you have to at least a manageable amount before you consider taking out a personal loan or salary loan. Constant borrowing without the means to repay will inevitably lead you into financial difficulties that can take a long time to recover from.

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