Applying for Personal Loans: A Guide for First-Timers

Financial troubles such as medical expenses, sudden car or home repairs, or family emergencies often catch us unprepared. If you don’t have an emergency fund to take care of it, then you’ll most likely end up having to take part of your savings and personal funds just to get by. However, this could easily snowball into other financial issues such as lack of funds for your daily essentials and bills.

One effective way to obtain funds for financial emergencies without dipping into your savings is to take out a personal loan. This type of loan can usually be obtained from traditional banks, though many online lenders and digital banks have also started offering loans that suit different needs.

That being said, taking out a loan without a proper idea of the ins and outs of borrowing can eventually lead to other financial troubles. Hence, if it’s your first time applying for a personal loan, make sure you consider the following factors:

1. Purpose of the Loan

Personal loans are multipurpose in nature, meaning that they can be used to cover either short-term emergency expenses or long-term funding. So, before applying for a personal loan, it’s important to determine where you will use the loan proceeds. Do you need immediate cash to pay for time-sensitive expenses or will you need bigger funding to be used gradually over time? Knowing these details prevents fund mismanagement and also helps you find a lender that will fulfill those needs.

For instance, Maya has Maya Personal Loan and Maya Easy Credit among its offers, which are suitable for different kinds of borrowers. Maya Personal Loan can get you up to PHP 250,000 and can be paid within 6 to 24 monthly installments, making it ideal for borrowers who need a larger sum of money and more flexibility on repayment. Meanwhile, Maya Easy Credit can get you up to PHP 30,000 within seconds, making it the perfect entry level loan for first-time borrowers who need urgent funds to augment their cashflow but don’t have access to other credit lines.

Overall, by deciding on the purpose of your loan beforehand, you make it easier to choose and apply for the right loan for your circumstances.

2. Interest Rates

Interest rates can vary greatly depending on the loan product and its payment terms, so make sure you compare different lenders before deciding to apply for a particular loan. After all, even a small difference in the interest rate percentage can cost you hundreds to thousands of pesos during repayment. Ideally, you should go for a reliable lender with the lowest possible percentages. As a benchmark, the above-mentioned Maya Personal Loan has interest rates as low as 0.77% per month depending on the loan terms you choose.

Note as well whether the interest rate of the loan is fixed or variable. As the name suggests, fixed rates keep the same interest rate in the entirety of the borrowing period. Meanwhile, variable rates can change over time depending on the market. Fixed interest rates tend to be higher but will at least offer consistency in your repayment schedule, while variable interest rates can start low but could potentially increase over time.

3. Total Loan Cost

In addition to interest rates, personal loans may come with other costs as well such as service or transaction fees. Hence, make sure to check what fees come with the loan you’re applying for so you don’t get any unpleasant surprises once you receive your loan amount. To be sure, make a calculation of the total loan cost (including fees and interest) to get a clear picture of the impact it will have on your finances.

4. Loan Term and Monthly Payments

Repayment is an important aspect of any personal loan, so it’s important to be aware of what your loan term says about it. Some lenders set a fixed period for your repayment, while others may let you choose the duration of your loan. Note, however, that interest rates may change depending on the length of the repayment period—usually, longer terms have higher interest. Calculate the monthly payments for different loan terms and repayment periods to see which one will best suit your financial means. Some lenders like Maya even provide their own loan calculators, so you can compute your payments yourself and have a clearer understanding of your personal finances.

5. Secured and Unsecured Loans

Personal loans can either be secured (backed by a collateral) or unsecured (doesn’t require a collateral). Secured loans usually come with lower interest rates considering the lender has a fallback if you’re unable to pay; however, you’ll be putting yourself at risk of asset loss if you can’t repay. For first-time borrowers, unsecured loans may be more suitable and appealing but do consider the pros and cons of each loan type first before deciding.

6. Repayment Flexibility and Terms

Different lenders can have different repayment terms, so make sure you’re aware of them before you submit a loan application. For instance, some loans may charge you for paying off the loan earlier than the term period while some may let you skip a monthly payment without additional fees in case of emergencies. Make sure to carefully consider such repayment terms and flexibility in case you have variable income or see potential changes in your financial situation in the immediate future.

Applying for a personal loan can be a lifesaver during financial emergencies, but make sure you put much thought into it first to minimize its impact on your finances. By taking into account the considerations listed above, you can be guided toward applying for the right loan that will suit your financial means and goals.