What You Need to Know about Collateral Loan

In a previous post, we shared what non-collateral loan is and why this type of loan can be beneficial for you, especially if you don’t have assets under your name. On the other hand, there is another type of loan that you will come across and it goes by the name collateral loan. 

What is this about? How is it different from non-collateral loan?

Keep reading to find out.

Collateral loan, defined

From the name itself, collateral loan is a type of loan that is secured by an asset, preferably under your name, the borrower. This means the loan is guaranteed by an asset and will be transferred in the name of the lender in case you are unable to pay after several demands. This way, the lender is assured that no matter what happens, the loan obligation will be paid and will not lose the entire amount borrowed.

Assets you can use as collateral include property or real estate, vehicle, jewelry, cash account such as time deposit, collectible items, or investment like stocks or mutual funds.

Why apply for a collateral loan? 

You are at risk of losing your property. Why should you go for this type of loan?

First, keep in mind that you will only (possibly) lose the property or any asset you used as a collateral IF you failed to pay your loan obligation. Before that happens, lenders often give borrowers a chance to pay for loan by coming up with an arrangement that is beneficial for both parties.

In case you are still unable to pay despite the arrangement and (the many) chances given to you to be able to pay, then that’s the time when lenders will go after the secured property to cover for the loan. This can be a tedious process, which is why foreclosing an asset is often the last resort.

Nonetheless, the good thing about collateral loan is that you can get a loan regardless of having a bad credit. Your credit score is a crucial factor in determining your credit-worthiness, but lenders are willing to bend the rules and approve your loan application IF you can present any asset for collateral.

Interest rate is often lower compared to non-collateral loan because in collateral loan, there is a security attached to the obligation. There is no better assurance than an asset itself; hence lower interest rate.

What if the value of the collateral is lower than the loan amount? 

Unfortunately, you still have to pay for the entire loan amount. For instance, your loan value is P100,000 and the value of the asset you used as collateral dropped to P80,000. You still need to pay the remaining P20,000 plus interest charges up to the day of payment to fulfill the entire loan obligation.

Does Balikbayad offer collateral loan? 

Apparently, we don’t, although we require you to have a co-maker (who receives remittances from you) when applying for a loan with us. We want to keep loan application and processing simple and straightforward by not asking too much documents from you.

What are you waiting for? Send your loan application now and let us be your partner to help you achieve financial freedom.

Frequently Asked Questions about OFW Loan (Which are Asked by OFWs)

Every year, the total amount of remittances sent by OFWs is worth billions of dollars. This created a positive impact in the Philippine economy, which is why OFWs like you are regarded as modern heroes or “bagong bayani.” 

Here’s the thing: despite earning in dollars, there are still instances when you need to borrow money to finance big purchases such as purchase of a car or your dream home. Before you apply, we list down the common questions asked by many OFWs when it comes to applying for an OFW loan:

1) What is an OFW Loan? 

An OFW Loan is a type of loan facility specifically designed to meet the financial needs of OFWs. It can range from business to personal loans, but the common denominator is that it is intended for the benefit of OFWs.

2) Who is qualified to apply for OFW Loan? 

Since it is specifically geared for OFWs, the individuals qualified to apply for this type of loan are the following:

  • First-time OFWs
  • OFWs with existing contract abroad but are only here in the Philippines for vacation
  • Returning overseas workers or Balik Manggagawa

Take note that some lenders require minimum monthly salary, so make sure you inquire about it first before submitting your loan application.

3) What are the requirements I need to submit when applying for an OFW Loan? 

Every lender has their own set of requirements. Nonetheless, make sure you prepare these documents to facilitate faster approval of your loan application:

  • Philippine passport or Seaman’s Book for seafarers
  • Employment contract validated by the POEA
  • Working visa
  • Overseas employment certificate (OEC)
  • At least one government-issued ID (in lieu of the upcoming OFW ID)
  • Ticket or flight details

4) How much can I borrow?

The loan amount depends on the lender. Many lenders set a minimum amount of P1,000 and a maximum amount of as much as one million. Nonetheless, this doesn’t mean you can get a maximum amount every time you apply for a loan. Lenders still look at your credit history and capacity to pay, which they will use as a basis for your credit amount.

5) How long can I pay for the loan? 

That will also depend on your agreement with the lender. You can borrow money and pay it after 30 days. On the other hand, you are allowed to pay the loan for up to 12 months.

6) I’m about to leave the country. Can I still apply for an OFW Loan?

Of course! In fact, lenders prefer that since you are still here in the Philippines and capable of physically signing the loan documents. A small request, though. If you can, please apply at least 15 days before your scheduled departure to make sure that the application process will proceed smoothly and you can get your money before you leave.

7) Can I apply for a loan while I’m working overseas? 

This will depend on the lender. Here in Balikbayad, we require you to be physically present to be able to sign the documents. Other lenders accept Special Power of Attorney where you will assign any of your family member as your attorney-in-fact. If possible, you can execute the document before you leave and have it notarized, otherwise, the SPA must be consularized.

Read more about Special Power of Attorney here.

8) How long is the application process?

Lenders understand the urgency of your cash needs. That is why many lenders like us are committed to processing your loan application within one banking day. On the other hand, some lenders, especially commercial banks, look into your credit history first before they can extend credit. This will take days to a week or two, depending on the lender.

9) What if I don’t have a property under my name. Can I still apply for a loan? 

The answer is yes. There is a facility called non-collateral loan, which allows you to borrow money even without property under your name. This could mean higher interest rate as a form of guarantee.

Another option would be applying with a co-borrower. A co-borrower is someone who will guarantee your loan and will be contacted by the bank in case you are unable to pay your loan.

10) What should I do to guarantee loan approval? 

  • The information you provided in your loan application must be complete and correct.
  • No history of past due debts, negative findings, and other money-related court cases.
  • Borrow money that is within your salary or capacity to pay.
  • You must provide all documents needed to prove your capacity to pay the loan.
  • Establish your beneficiaries of the loan.

11) What are the modes of payment? 

You can pay your loan via post-dated check or direct deposit to account. If you will apply in banks, most of them will recommend (if not impose) automatic debit arrangement since it is easier and more convenient. No reminders will be sent since the system automatically deducts the amount from your account (so make sure you have sufficient funds every month).

12) Where can I use the proceeds of my OFW Loan? 

Ideally, it will depend on you and your needs. You can use the proceeds of your loan to start a small business, finance immediate and emergency needs, renovate your home, or even use it as a downpayment for a major purchase. Nonetheless, you have to be clear on your purpose. Some lenders don’t allow the funds to be used to pay for placement fee and other fees related to applying for a job abroad. Ask your lender first to be sure.

Got more questions? Let us know by leaving a comment below. 

5 Tips on How to Get the Best Deal on Your OFW Loan

Most people think that if someone in the family works abroad, life is easier and better. After all, someone is earning in dollars (and we know how much the exchange rate is now, which is currently at P50 mark as of this writing). When you earn in dollars, this could mean you and your family can easily afford anything you like, or at least according to their expectations.

On the other hand, lenders, both commercial banks and private financial institutions, realize that not all OFWs are living the good life. In fact, there are still many who are having a hard time, especially in the financial aspect. This is why they offer various products specifically for OFWs – with perks.

Here’s the challenge: finding the best deal on your loan, regardless of the kind of loan you are getting.

Here’s what you can do to make sure you get the best deal every time you apply for a loan – and make the loan work for you:

1) Always submit the requirements needed. 

You have the tendency to blame the lender for not immediately processing your loan. Aside from processing tons of loan applications in a day, one of the reasons why there is delay is because you did not submit all documents required.

If you want to speed up the processing of your loan application, then make sure you submit everything they ask for. The same goes for online application.

2) First, compare and then decide. 

It’s okay to ask recommendations from friends about the best lenders in town. Before you say yes to a specific lender, make sure you explore your options first.

Use the Internet and look for lenders that offer the loan facility you are looking for. Many lenders post their rates and charges, so make sure to take note of that. Don’t forget to check the “Review” section to see what other clients are saying.

Tip: Look for loan comparison charts or tools similar to this one. Through this, you can easily see how much every lender charges and help you decide which lender you can afford.

3) Know how much is your capacity to pay.

One of the common mistakes made by OFWs when applying for a loan is asking for too much. This means when you are earning P40,000 every month and owns a property worth P300,000, you will ask for a million-worth of loan. That is outright rejection since lenders will be concerned on how you can pay for the loan.

Before you apply for a loan, make sure you check on your finances and savings first to determine how much you are worth. Any existing debt, whether from credit card or other loans, must also be included since they could affect your cash flow and capacity to pay the new loan.

In other words, be realistic. Don’t ask for too much when you don’t have enough assets to back it up to avoid loan rejection.

4) Go for the right type of loan and according to your needs. 

The good news is loan comes in various types that will match your specific needs. Even if they have a common denominator, which is loan, loan products are designed in such a way that could work for you. The rates and charges vary too, so look into that as well.

Know what you need first then check if your lender offers a facility specifically for that need.

5) It’s okay to negotiate the rates and loan terms. 

Yes, you read that right. Lenders follow the rate prescribed by the Bangko Sentral ng Pilipinas (BSP) and adjust it to make sure they can earn. Nonetheless, try negotiating the rates and terms of the loan to make it favorable to you, without compromising the bank’s standing.

Still, this would depend. Improve your savings account, prove your ability to pay, and maintain a good credit score. This is no guarantee, but these three factors could help.

When Is the Right Time to Apply for a Loan?

Medical bills, tuition fee of kids, unpaid bills with past due notices – these are some of the many instances that forces you to borrow money in order to pay for these expenses. By borrowing money, this could mean borrowing from friends or family or getting a loan from the bank, whichever is applicable.

Here’s the thing: there are instances when you might not need to borrow money from banks or your family.

Check out these guidelines or instances on when is the right time to get a loan. 

1) Repay a loan with higher interest

As a rule, borrowing money to pay off your already borrowed money is a big no-no. On the other hand, there are instances when you are allowed to get a loan to pay for your existing debts.

If your existing loan has higher interest rate, then look for a loan with lower interest rate. In doing so, you will be able to save more on interest, thereby increasing your chances of repayment. This could get an instant boost in your credit score as well.

Tip: Consider debt consolidation. This means all of the loans are under one unified loan with one interest rate and one due date. This will make it easier for you to manage debts.

2) Getting a higher education

You can’t be an OFW forever and that’s okay. If you plan to pursue higher education or get further studies, then getting a loan is fine.

It’s not just any other loan. Apply for a salary loan so it will be easier for you to pay for the loan while getting a career boost.

3) Established cash flow every month

Time and again, we always emphasized the importance of growing your money through various investments. After all, you can’t work overseas forever. This is why it is imperative that you start growing your money so you will have a stable cash flow in case something happens, say sudden termination of employment or accidents.

Once you have an established cash flow, that’s the time that getting a loan is advisable. Keep in mind that lenders look closely at your ability to pay, whether in the form of monthly salary or any other modes of cash income. If you are able to prove that you can pay your loan, then there is a higher chance of approval.

On the other hand, there are cases when getting a loan is not advisable. These instances include:

  •  Travel money – Going somewhere with the family can be exciting. Still, borrowing money to be able to pay for your travel expenses is not advisable. If you plan to pay for your travel expenses by getting a loan, then it is best not to get a loan and save up for that instead.
  • Buying material things – Want a new phone or a tablet but you have not enough funds to finance for it? Then save up for it instead of getting a loan. Borrowing money to buy goods, especially something that won’t last is not recommended.

Lenders like Balikbayad will always be there to help you with your cash needs. Still, keep in mind that they consider a lot of factors before you get that loan approval. Avoid borrowing money just to get out of your current situation. Loans will always be loans and any unpaid loans can take a toll in your credit score.