MANILA - Amidst howling winds and pouring rain, we were surprised to receive a delivery yesterday morning. For his heroic commitment to bring us our utility bill, I gave the rider a generous tip and advised him to go home. With a rueful smile, he said he wants to but his family needs come first. “Salamat kay COVID, marami pong utang na kailangang bayaran (Thanks to COVID, we have a lot of debt that must be paid off),” he confessed.
He is not alone as COVID-19 has infected many wallets over the past six months, leaving the poor even poorer and deeper in debt.
According to the latest Consumer Expectations Survey of the Bangko Sentral ng Pilipinas, household savings are at all-time low, registering at 24.7 percent nationwide, and at a lower number for the National Capital Region at only 22.7% for the third quarter of 2020.
These are drastic dips from the 37.8 percent and 44 percent recorded figures at the start of the year, or before community lockdowns were imposed to arrest the spread of COVID-19.
The devastation that Supertyphoon Rolly left in its wake will likely make things harder not just for our rider but for many families whose homes, communities and businesses were affected.
With only 1 out of every 4 families having savings, crisis situations like COVID-19 and natural disasters like Typhoon Rolly leave them no choice but to take out a loan. Even with savings, some will still need a loan to have some breathing room as bills and expenses pile up.
If you have to take a loan, where can you go? Not too far apparently, as banks to credit card companies to pawnshops to loan Apps are all competing for your business, and all promise easy application, fast approval and quick release of cash. But before you say yes, consider all your options so your loan will make things easier for you now and not turn into something you will regret later.
#1 Check with your employer first.
Many employers offer a salary loan or emergency loan to help employees in cash-strapped situations.
More often than not, their interest rates are lower than what you would get from a bank or a credit card so it’s worth checking.
Application should be easier too as these are usually administered through Human Resources, and payments are via salary deduction.
#2 Look into SSS, GSIS and Pag-Ibig too.
Whether you are a private sector or government employee, your mandatory contributions that go to the Social Security System, the Government Service Insurance System entitle you to some of their loan products, from multi-purpose loans to calamity loans.
Check the rates and payment terms and compare these to your employer’s before you make a decision. Sometimes, you may need both – a loan from your employer and a loan from SSS or GSIS and PagIbig.
Just make sure you do not take out too big a loan that very little is left from your salary for your family living expenses.
#3 Try approaching family and friends.
I don’t usually recommend this, but tough times call for tough choices. If you have family members or friends that are in better financial situations, try asking them for a loan.
Prepare your arguments: (1) share why you need the loan; (2) suggest an interest rate; and (3) confirm a payment schedule. If you can have it in writing, or give them post-dated checks, it will improve your chances of getting a Yes answer. But if they do say no to your loan request, they may be able to offer their help in some other way so don’t give up too soon.
Do you have jewelry you may need to pawn off? Why not sell to family and friends instead as they may give you a better price than the pawn shop. You can also discuss redemption options when your cash flow improves.
#4 Banks and credit card companies come next.
Many banks today offer personal loans, which are unsecured credit, meaning you do not need a guarantor or collateral. Credit card companies also offer cash loans which you can withdraw against your available credit limit.
Note that this is not the cash advance facility of your credit card, something I do not recommend not just because of the high interest but also the way the interest is computed.
Whether from a bank or against your credit card limit, the advantage of these loans is that you know how much you need to pay each month and for how long, and can budget for the payments against your salary.
But you need to ask what happens if you are unable to pay. Will the interest rate be recomputed? What are the penalties? Read the fine print before you sign on the dotted line.
#5 Beware of online credit and loan Apps.
A quick search online will show you many options to apply for a loan via the Internet or from an App. Like option #4, these are also mostly unsecured loans but unlike option #4, their interest rates are much higher.
Most of them require privacy waivers and access to your social media accounts – this is a red flag – as past cases have shown that clients who were unable to pay were tagged as such in their Facebook accounts.
Government is cracking down on this “shame game” tactic but in the meantime your reputation may have already taken a hit.
As with any money decision, best to do your homework to get the best deal for you and for your family.
Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.