7 ways to be a smarter borrower in 2021

Ailene Amaro
Dec 28, 2020
7 ways to be a smarter borrower in 2021

Borrowing money from online loans is one of the remedies any Filipino can think of to fund emergencies. There is no doubt a lot of mid-income families have benefitted from easy cash which gets into their bank accounts in a day. Mobile phones served a good use of accommodating pautang services apps to help users grab the loan opportunities available. But borrowing money is also seen as the primary reason why most Pinoys get into debt traps and miserably staying there for a while.

Your financial condition in 2021 highly depends on how you manage your cash flow, income, and debts. Here is a list of ways how you can be a smarter borrower who improved his finances through online loans.

1. Borrow only the amount you need

When borrowing money, you get tempted to take as much as you can especially if you think the opportunity comes only once. You only need Php10,000 for your accumulated Meralco bills but because you get approved for Php30,000 you end up taking home the maximum loanable money. You then spend the excess paying for unplanned purchases.

Borrowing only the amount you need limits your debt risks and helps attain your goal. You don’t need to worry much about repayment because you know that you borrowed something you could pay for.

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2. Search for lower rates

Most borrowers fail to search for the cheapest loan. You may say you’ve got no time to search because it was an emergency. But you can always check for offers even before you haven’t been into that dire need for money. Comparing rates will save you more even when at first glance, the only difference from one loan to another is at 1%. Remember, loan costs are calculated for the entire tenure and so compare rates in terms of how long you're planning to pay off the loan.


3. Prepare your documents ahead

Some borrowers don’t get approved for a Lazada loan because they don’t have any valid government-issued ID. Most of the time, they struggle to produce one and end up getting declined for their application. Even when you don’t intend to borrow in the next few months, it pays to check on postal ID requirements so you can apply for one. A postal ID is issued by the Philippine Postal Corporation and is valid for three years.

You may also want to apply for a UMID or Unified Multi-Purpose ID which lasts a lifetime, unlike any other government-issued identification card.

4. Inquire about repayments

Most online loans usually partner with payment centers, pawnshops, and money exchange bureaus. Repaying your loan is very important so checking out the nearest bayad center branches or M Lhuillier shops will ease out repayments. You can also check for online apps and e-wallets to see whether they accept payments for your online loans. If you can’t find the easiest ways to repay, then you might think twice in proceeding with your application. Consider how much time and money you need to spend to reach the nearest payment hub. The trouble might lead you to defer payments and may result in delinquencies.

5. Keep your loan tenure short

Short-term loans are gaining popularity in the country because of the lenders’ easy-apply scheme and because of their short loan tenors which could be from 15 up to 45 days only. Online loans offer the convenience of getting the fast cash and repaying them off as soon as possible. Although most online loans come with high interests, the idea of closing a responsibility in more or less than a month is a huge relief for any borrower. Personal loans that extend up to 36 months often let you endure longer periods of repayments. The interest rates may be lower, but the total cost of the loan will be almost equal to a short-term loan.

6. Create a financial cushion

A financial cushion is any amount of cash or liquid assets that you can readily use to support a financial crisis. Normally, a cushion can range from Php10,000 to Php50,000 which you keep intact in your checking account or savings account. It is quite different from an emergency fund which is a large balance that could cover your cost of living for a few months in case of job loss.

Having a cushion and an emergency fund will save you from getting high-interest loans and spending your savings. You can start building your financial cushion by cutting on discretionary expenses like pleasure shopping and dining out. Set aside the money you saved from escaping weekend night outs and start establishing the fund. This will help you spend the money from pautang services wisely. 


7. Assess your debt-to-income ratio

A smart borrower knows the ratio between all his debt payments and his income. He can discern whether incurring new obligations. To get your debt-to-income ratio, compute all your debt payments, and divide these by your net monthly income (income after tax and contributions). For example, your total debt payment is Php20,000 and your monthly net income is Php60,000. Your debt-to-income ratio is 33%.

Most lenders see to it that the ratio is not more than 43% before they approve your loan. In case the ratio is higher than the ideal 43%, then it is time for you to find an additional source of income or to cut back on your expenses.

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