Many of us get intimidated by the fact that collateral loans in the Philippines require pledging a certain asset in order to apply and be approved. While this may be the case, much hasn’t been spoken about the numerous advantages secured collateralized loans have over unsecured non-collateralized loans.
In many ways, secured collateral loans might just be the right loan for you as getting one is a key tip for your business to stay in the game during the pandemic. So in this article, let’s dig deeper about it and the benefits of using collateral loans to borrow money in the Philippines.
A collateral loan, also called a secured loan, is secured by what you own such as your car or property. The collateral protects the lender in the event of non-payment by the borrower. When you borrow money in exchange for collateral, you are agreeing that your lender can take the asset you pledged and sell it. In this way, the lender can recover any funds that you do not repay.
As mentioned, a secured loan is secured by collateral. Most of the time, the asset pledged is usually tied to the type of loan that the borrower is applying for. Let’s say, if the borrower has requested an auto loan, the usual collateral for the loan would be the motor vehicle that will be financed using the loan amount. Another example is if the borrower applies for a mortgage to buy a house, the purchased house is used as collateral for the loan until it has been fully paid.
In some cases for mortgages and auto loans, the lender may require the borrower to take out a specific type of insurance to protect the asset. By getting insured, the lender can recover the outstanding balance of the loan from the insurance payments in case of accidents, fire, or natural disasters.
Contrary to a secured loan, an unsecured loan is not backed by collateral – it is only based on the borrower’s ability to make timely repayments and their creditworthiness. Since these are not backed by assets, they usually carry a relatively higher level of risk than asset-backed secured loans. In this case, lenders charge a higher interest rate for unsecured loans to compensate for the added risk.
Any asset that the lender accepts as collateral can serve as your collateral, as long as it meets the laws. Generally, lenders prefer assets that are easy to value and can easily be turned into cash. Imagine money in a savings account. It is great for collateral because lenders can already determine how much it’s worth plus, it’s easy to collect. Moreover, there are other common forms of collateral such as:
Here are some of the hidden benefits of using Collateral Loans to borrow money in the Philippines that not a lot of Filipinos know:
A secured loan can give you a better chance of getting approved compared to unsecured loans.
Depending on the collateral, a secured loan in the Philippines can give you better chances of getting approved compared to unsecured loans. The rationale behind this is that the more valuable your “asset as a collateral” is, the lesser is the risk. But do remember that since this is a collateral loan, your asset can be repossessed if you don’t make timely loan repayments. So make sure you are able to commit to your monthly payment schedule.
Unlike most bank loans and unsecured loans, secured collateral loans don’t require a perfect credit history just so you can get approved since collateral loans are contingent on the collateral on hold and the capacity of the applicant to pay. Thankfully, there are lenders like Radiowealth Finance Corp (RFC) that gives us the option of getting a secured loan without an outstanding credit history.
Read also: Are you qualified to get a loan? Check these 5 factors
The loanable amount you’ll be able to get with a collateral loan may depend on the current market value of the collateral. For example, some loan providers earmark 70 to 80% of the fair market value of a vehicle (collateral) as the possible loanable amount. Unlike unsecured loans, the computed loanable amount is based on your current income. So if your motorcycle is fairly new, know that it still holds much of its value and hopefully, you can get a higher loanable amount.
Unsecured loans such as cash loans, bank loans, and personal loans usually start at 1.5% interest rate and can go as high as 5%. With secured collateral loans, interest rates are lower. To give you an idea, RFC loan can offer as low as 1.3% interest rate.
Read also: 4 business loans myths you should stop believing
If you have no history yet of borrowing from any financial institutions or if you need to work on your credit history standing, starting it off with a secured collateral loan is one of the best decisions you’ll ever make. Of course, it still boils down to making complete payments on time. Being a good payor creates good credit history which eventually will open up more and even better opportunities for you financially.
Now that you understand the inherent benefits of using Collateral Loans to borrow money in the Philippines, you can begin today by applying for an RFC Secured Collateral Loan. RFC is the leading financing firm in the Philippines that provides secured loans as well as other Personal and Business Loans.
CLICK HERE to start your application. The types of collateral we accept are Vehicles, Properties, Trucks, Heavy Equipments, Appliances, and Livestock (selected branches).
Thinking about risk: We can attribute this attitude to a man named Alfredo Yao, founder of Zest-O Juice drinks.
He was a bonafide risk-taker.
He lost his father at the age of 13. And being the eldest among his siblings, he stepped up to help support his family. At age 17, after graduating from high school, he set up a packaging business with a capital of P3,000 which he borrowed from his mother. That amount, according to his mother, was the family’s entire fortune. But he took the risk.
After his business trip to Europe, he brought home a new technology that produces a type of packaging known as the “doypack”. He attempted to sell the doypack packaging to juice manufacturers but was rejected.
So, in response, he started to create his own juice and package it with the new doypack packaging he bought from Europe, and voila! Zest-O juice drink was born.
Had he coward back in loaning the capital for his first business from his mom, and had he not dared to venture out and took the risk of selling his own brand of juice drink despite his competitors? We wouldn’t be talking about him today.
Be willing to take any risk necessary for your business to adapt and survive during tough times.
Take the smiling big red bee as an example. Jollibee food chains have been around for quite some time now, and to many of us, it has been a trademark of Filipino excellence in the food industry.
But the business is also not exempted when it comes to facing challenges. Its humble beginning from a simple ice cream parlor to what it is today reminds us that hard work eventually pays off! And that if you persevere even during the tough times, you can succeed as long as you keep your mindset focused and aligned with your business goals and vision.
Tony Tan Caktiong, founder of Jollibee Foods Corporation (JFC) has climbed the ladder of success from rags-to-riches. Coming from a poor family in Fujian province in China, he and his family migrated to the Philippines in hope of a better life.
Eventually, they did.
Today, with more than 4,600 store branches across 21 countries, JFC is now one of the largest and fastest-growing Asian restaurants in the world – partnering with other well-known food joints like Chowking and Greenwich (to name a few); and of course, with Coffee Bean as its most recent acquisition – JFC is now enjoying its success!
This is truly evidence of perseverance and hard work over the years.
The brand name Jollibee, by the way, was derived from the work ethics Tony and his family possess – happy and hardworking as a bee!
Don’t let any distractions or other opportunities blind you with you truly want. During tough times, there can be challenges that you feel like you can no longer surpass. But you have to remind yourself with what you truly believe in. What’s your ‘why’ when you started the business? Keep your eyes in the prize even there are challenges trying to threaten you.
Think about Potato Corner’s CEO and founder Jose “Joe” Magsaysay Jr.
The man established his food cart business in 1992 and briefly left the company in 1997 to pursue politics but failed. He attempted to pursue a doughnut business afterward but eventually went back to the french fries business after realizing his core value:
“I really believe in ‘one thing at a time.’ Potato Corner grew the way it did because we focused. We had a lot of opportunities to explore because of the success of the business, but we realized it was successful precisely because we were so focused,” he said.
Read also: Secrets to Success: 3 inspiring Filipino entrepreneurs who started small
This is a perfect example of a man who clearly knows what he wants to do. Despite the opportunities at hand, he chose to stick with what he really wants.
Today, Potato Corner has 550 kiosks around the world and is a global franchise business with annual sales of P1 billion.
If we keep these business traits in mind (a mindset that most successful business people possessed) the pathway to success will be evident even during tough times.
Being your own boss comes with a huge responsibility, and we do understand that sometimes cash flow can be a little tight. We also know that, in order to grow, you need to increase inventory or beef up your capital. RFC supports Filipino entrepreneurs by offering flexible business loans.
We help your business dreams take flight
Radiowealth Finance Company Inc.
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