How to cope with or take advantage of higher interest rates

Warren de Guzman, ABS-CBN News

Posted at Mar 23 2023 08:08 PM

MANILA - Loans have become even more expensive with the Bangko Sentral ng Pilipinas hiking the country’s benchmark rate by another 25 basis points in a bid to tame inflation. 

What can consumers and business owners do as borrowing costs continue to go up?

Alex Ilagan, Executive Director of the Credit Card Association of the Philippines said there is a neat trick for the financially savvy, to reduce their interest expenses.

“Credit card interest for installment is still relatively cheaper than other types of installment loans. So I would suggest if they have debts in other banks for other types of loans, and the interest rate is higher, it would be best if they can transfer the balance to a credit card. They can get an advance, get an installment loan from a credit card, pay it off and then start paying an installment on credit card. Because credit card installment loans are still very competitive at this point. Some of them are charging 1 percent which is the ceiling imposed by BSP."

Ilagan however said the best way to navigate the current situation is be prudent with money, and borrow judiciously. 

“We always encourage cardholders to be very prudent in their spending. Be very disciplined."

Registered Financial Planner Fitz Villafuerte meanwhile said consumers should take advantage of higher benchmark rates, because these also apply to savings deposits.

“Yung mga interest rates sa mga savings account, particularly yung mga digital banks, ang tataas ng ino-offer nila. So let’s take advantage of these very good interest rates sa ating mga savings. Kaya maganda na nag iipon tayo during this time."

BSP Deputy Governor Francisco Dakila said a comparison of average time deposit rates showed how depositors can take advantage of the hikes in interest rates. 

“We are comparing May 2022 as against February 2023. So the average for May 2022 was at 0.58 percent. For February it is at 3.68 percent. So that is a difference of 310.5 bps, or 3.1 percent.” 

“For the long term time deposit rate in May 2022, the average was at 3.01 percent and February 2023 the average was at 5.14 percent. That is a difference of 212.4 bps. So that illustrates that there has been policy rate pass through to bank interest rates. Actually not only that, but to the effective lending rates."

Another tip from Villafuerte, borrowers with existing loans should visit their bankers to see if they can lock in their rates, or find a way to leverage any existing relationship into more favorable terms. 

“Kausapin mo yung inutangan mo, tignan mo baka meron silang inooffer na debt restructuring."

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