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Benefits of Using Collateral Loans to Borrow Money in the Philippines

Benefits of Using Collateral Loans to Borrow Money in the Philippines

Many of us get intimidated by the fact that collateral loans 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.

What is a Collateral-based Loan 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.

 

Secured vs. Unsecured Loan: What’s the difference?

 

Secured Loan

 

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. 

Unsecured Loan

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.

Types of Collateral in the Philippines 

 

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:

 

  • Real estate property 
  • Motor Vehicles
  • Selected Appliances
  • Sea Vessels
  • Motorized Banca
  • Livestock (Buffalo, Horse, Cow)
  • Machinery and equipment
  • Receivables or future payments from customers
  • Personal assets (like your family home) 

How will a Collateral Loan Help You? 

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.

You don’t need a perfect Credit History 

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 

Secured loans can offer a higher loanable amount compared to unsecured loans.

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.

Secured collateral loans offer some of the lowest interest rates

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

Secured Loans help build a Good Credit History 

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).

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