October 31, 2022 8 min read

A lot of us have been hoping for financial relief even before the pandemic. Aside from juggling several jobs, most of us rely on personal loans as a quick solution for our financial woes. 

But doing the hard work and enduring the tedious loan application process still won’t let money come so easily sometimes. As a result, borrowing from banks and other lending institutions has become a disappointment for Filipinos who have been declined several times already. 

This is not the time to give up, though. We’ve listed down some useful personal loan tips to improve your chances of getting approved. Read on to learn more ways to ensure better chances of approval for your personal loan application.

Personal Loan Tips to Help Improve Your Application

Ready to apply for a loan? Check this list first before submitting that application.

1. Be Realistic with Your Numbers

Make sure you’re borrowing an amount you can realistically pay. You can use the debt-to-income ratio to measure how much of your salary should go to loan repayments.

The debt-to-income ratio is a personal finance measure that compares an individual’s monthly debt payment to his or her monthly gross income.

How to compute debt-to-income ratio

For example, your monthly gross income is PHP 25,000, and your total monthly debt payments are PHP 9,500, your debt-to-income ratio is 38%. This means you spend 38% of your salary on monthly debt payments.

It’s best to keep your ratio low because lenders may not approve your personal loan application. This is one of the top personal loan tips to keep in mind when getting a personal loan.

2. Understand the Types of Personal Loans Available

Learn about the types of personal loans in the market. You can get a secured or an unsecured personal loan, but what’s the difference?

A secured loan uses one of your assets as collateral. If you can’t repay the loan, your lender has the right to seize your asset, which may be your vehicle or property. Moreover, the lender may sell it to cover the money you owed.

The amount you can borrow with a secured loan is typically higher than in an unsecured loan. The interest rates tend to be lower as well.

With an unsecured loan, you don’t have to put up collateral. If you miss repayments or default, your lender cannot take any of your assets to settle your debts.

Also, the amount you can borrow with an unsecured loan is smaller. The interest rates may be higher as well. However, it doesn’t mean defaulting on an unsecured loan has no consequences. Your credit history will be affected if you don’t pay your loan.

3. Compare Personal Loans

Many financial institutions in the country offer personal loans, so it can get overwhelming. Do your research first so you know your options — this is one of the most important personal loan tips.

According to the Bangko Sentral ng Pilipinas, borrowers consider the interest rate, loan amount, repayment period, and ease of application when applying for a loan. You may consider these factors as well when comparing loan products.

Apart from these, you should consider your loan needs and how much you can afford. Banks won’t loan you an amount you can’t pay. So, when comparing different loan providers, ensure that the interest rate, processing fees, and loan term are realistic in relation to your financial standing.

4. Talk to Lenders

Get in touch with lenders to know more about their loan products. You may call their customer service hotlines or inquire via email.

You can also head to your local bank and ask questions about the personal loan application process, time frame, terms, additional fees, and repayment schemes. It may be time-consuming, but it will help you fully understand the loan you’re  trying to apply for.

5. Have Your Personal Loan Application Documents Ready

Before starting the personal loan application process, prepare all the documentation you’ll need. Different financial institutions may have different requirements, so contact your preferred lender ahead of time to get a checklist of the items you need to submit. For example, it would be easier to apply for a Eastwest Bank personal loan if you already have a credit card for at least one year.

In general, you have to submit a fully accomplished personal loan application form, a photocopy of your valid ID, and proof of income. You may have to submit additional document requirements, depending on your lender.

Check your lender’s eligibility requirements as well. Typically, you must be at least 21 years old, and a Filipino citizen or permanently residing in the county. Some lenders may require a minimum gross basic monthly income to qualify for a loan application.

6. Check Your Assets and Liabilities

Assets are things you own like properties, vehicles, and other investments. Liabilities, on the other hand, are your financial obligations, such as credit cards or mortgages. Lenders may look at these when you apply for a loan.

So before applying for a personal loan, check your outstanding liabilities. Debts can impact your credit history, affecting how much you can borrow.

7. Improve Your Credit History

Financial institutions look at your credit history to determine whether you are a trusted and disciplined lender. If you pay your credit card balances on time every month, this shows that you can make the monthly payments on your loans.

If you have maintained a credit card with good standing, this shows that you have the discipline to pay off personal loans spanning two or three years.

Here are some ways you can improve your credit history for your personal loan application:

  • Pay your bills on time
  • Pay your bills in full
  • Spend less than your credit limit amount
  • Keep old accounts (longevity counts)
  • Avoid external factors that impact your history negatively (e.g. foreclosure, bankruptcy, etc.)

8. Make Sure You Have Proof of Income

You have a better chance of loan approval if you’re employed compared to if you’re a freelancer. The risk for banks is lower because you have a steady flow of income, meaning you can pay them back.

If you’re self-employed, your lender may ask you to provide the following documents:

  • A copy of your Income Tax Return (ITR)
  • Your audited financial statements for the past years
  • Necessary Licenses or permits such as a DTI business permit or an SEC registration

These documents show that you have a history of earning and paying taxes. Take note of these personal loan tips.

9. Be a Disciplined Borrower

Financial institutions also consider borrowers who have multiple forms of credit that they’re able to pay regularly.

For example, you have three credit cards with a total credit limit of PHP 150,000 and a car loan. You pay these debts on time, every month. It shows you can maintain a good credit standing while managing to pay multiple forms of credit.

However, don’t borrow more than you can afford. If you already have multiple forms of credit, but you can barely pay for them, a personal loan may not be the best idea.

10.  Try the Lender’s Loan Calculator

To find out your possible loan interest, monthly installment amount, and fees, you can use the lender’s loan calculator.

Here’s a sample from Security Bank’s online loan calculator:

First, enter the amount you wish to borrow. Remember, don't borrow an amount you can't afford to pay or don't need. It’s not practical to pay a loan you won’t even use for your financial need.

personal loan tips - loan amount in loan calculator

Next, choose how long you want to pay for your loan. The loan duration or tenor plays an important role in determining the cost of your personal loan. 

persona loan tips - loan tenor in loan calculator

 Lastly, check your  estimated monthly installment. 

personal loan tips - loan calculator computed result

This loan calculator will show you how much your expected monthly repayment will be. So for this example, you’ll be paying PHP 3,066 every month for 12 months for the loan amount of PHP 30,000. 

At a glance, you can also find out the interest that your loan will incur for one year. 

  • PHP 3,066 x 12 = PHP 36,792
  • PHP 36,792 - PHP 30,000 (principal amount) = PHP 6,792

In the computation above, you can see that the loan will incur an interest amount of PHP 6,792 for one year (PHP 566 each month). This does not include late payment fees and other charges. 

11. Improve Your Relationship with the Bank

Having a good relationship with your bank can help them evaluate your creditworthiness. Being a credit cardholder can help, but so can being a long-time client with several bank accounts.

Some banks don't even look at how much you currently have in your accounts. More often, banks will check how long your accounts have been active.

12. Know the Difference Between Good Debt and Bad Debt

Making a personal loan means being in debt to the loan provider. As a borrower, check whether you’re signing up for good debt or bad debt. 

Good debt is defined as taking out a loan to fund something that will potentially grow your assets[3] in the long term. Examples of good debts are money spent on tuition fees, career advancements, home renovation, or business capital. 

Bad debt is associated with borrowing money for something that will potentially reduce or prevent your asset growth. These are the things that depreciate over time, like borrowing for vehicles, shopping during monthly sales, and other unplanned purchases. 

So know your goal before taking out a personal loan. This will determine whether it’s a good or bad debt. Borrowing money for something that will not help you gain financially is not practical and may lead to unpaid debts for years. 

Personal Loan Tips to Speed Up Your Application

Personal loan approvals may take some time, especially during this pandemic when lending companies are operating with a skeletal workforce. Although you can’t control the entire approval process, you can still follow these personal loan tips to avoid delays on your application. 

  • Check your credit score. Before applying for a personal loan, check whether you have a good credit rating. This will give you enough time to improve your score or fix errors if there are any. 
  • Know how you can receive the loan proceeds. Can you pick up the check from the lender’s office or can you have the loan proceeds deposited to your account? Due to the quarantine restrictions, it’s safer to have the loan proceeds deposited to your bank account or mobile wallet. 
  • Prepare all your financial documents. Make sure you have updated documents as proof of your capacity to pay. Your latest income tax return, valid IDs, and correctly filled out personal loan application form can help speed up the process. 
  • Find a willing guarantor or co-borrower. A guarantor or co-borrower should voluntarily sign the loan application with you. This is applicable if you apply for an unsecured loan with no collateral or if required by the lender. The guarantor or co-borrower should also prepare the same documents required from the principal borrower.
  • Plan your payments. Having a plan to pay the loan even before applying for it is a good start. One of the most important loan repayment tips to keep in mind is to find another source of income. This way, should there be a change in your current salary, you’ll still have enough to cover your new debt.

What to Do When Your Loan Application is Denied

Getting declined on a personal loan is part of the process. If your loan application is not approved, here are additional personal loan tips to help improve your chances when you apply again:

  • Pay off your debts.
  • Apply for a secured loan if you have collateral to offer.
  • Inquire about other types of available loans you may be eligible to apply for.
  • Check other lenders.
  • Review the documents you’ve submitted.
  • Improve your monthly income.

Final Thoughts

Getting approved for a personal loan with low interest and convenient payment terms is a privilege. But it takes a while to build a good credit record to show lenders that you deserve a chance to borrow. It’s a process that requires discipline.

You can start by following the personal loan tips we shared in this article. And once your loan application is approved, make sure you have an efficient budgeting and repayment plan to pay down the debt and be eligible for bigger financial opportunities in the future. 

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