Borrowing money is always a tricky topic. You want to get the best deal possible, but you don’t want to get into too much debt. So, where should you go when you need some extra cash?
You can go to a bank and take out a personal loan or go to a licensed moneylender and take out a loan from them. Both have pros and cons, so which one is right for you?
It depends on your specific situation, but as a consumer, you should also be aware of your rights as a borrower and the actual cost of the credit. Here’s a breakdown of what you need to know about each option.
Table of Contents
- What’s the difference between borrowing money from banks and moneylenders?
- What are the benefits of borrowing from a bank?
- What are the benefits of borrowing from a moneylender?
- What are the downsides of borrowing from a moneylender?
- How do you know if you’re getting a good deal?
- How do you compare interest rates between banks and moneylenders?
- What’s the best way to pay back your loan?
- Final thoughts
What’s the difference between borrowing money from banks and moneylenders?
When most people consider borrowing money, they immediately think of banks. Banks may give out loans since they have a large sum of cash on deposit, and the bank will then lend out funds to qualified borrowers using this money.
Moneylenders do exist in the Philippines, however. Unlike banks, moneylenders operate outside of the banking system, and they offer different services and products than banks do.
Second, because they are taking on more risk by lending to someone who may not be able to repay the loan, moneylenders usually charge higher interest rates than banks.
Third, moneylenders seldom demand collateral for a loan, and this implies that if you don’t repay the loan, the moneylender won’t be able to seize your assets to do so.
Finally, moneylenders are not subjected to the same regulation levels as banks, which implies that they must adhere to different standards and rules than banks when lending money.
What are the benefits of borrowing from a bank?
When you borrow money, it’s essential to get the best possible offer. That’s why, in most cases, borrowing from a bank rather than a moneylender is preferable. For one thing, banks generally charge lower interest rates than moneylenders.
If you choose this option, it will save you money in the long run due to reduced interest costs. In addition, banks generally provide more flexible repayment options than moneylenders. You may pick and negotiate your repayment schedule with your bank based on your budget.
Finally, state laws regulate banks, giving borrowers additional protection. Moneylenders are not subject to the same rules as banks, making it riskier to borrow if you choose them.
What are the benefits of borrowing from a moneylender?
While borrowing from a bank is usually the better option, some situations might make more sense to borrow from a moneylender. One such case is if you need to borrow a small amount of money and need it right away.
Banks typically have minimum loan amounts that they’re willing to lend out. If you only need to borrow a few hundred dollars, this can be an issue. Moneylenders, on the other hand, are more likely to be willing to lend smaller sums of money, ranging from P1,000 to P40,000.
Moreover, moneylenders can process your loan applications quickly and credit the money to your account within 24 to 48 hours. Usually, these lenders capitalize on their technologies such as mobile apps and systems where borrowers can apply immediately through the mobile apps.
Another benefit of borrowing from a moneylender is that they’re often more willing to lend money to people with bad credit. It may be difficult to get approved for a bank loan if you have poor credit. Moneylenders are more likely to be willing to lend to you, even if your credit isn’t perfect.
What are the downsides of borrowing from a moneylender?
Of course, there are also some downsides to borrowing from a moneylender. The interest rates tend to be higher than what you’d get from a bank, and it means that you’ll pay back more than you borrowed, and it will take you longer to pay off the loan.
You should also be aware that some moneylenders operate outside of the law. They may charge exorbitant interest rates, require unfair repayment terms, or engage in illegal activities.
Before signing on the dotted line, it’s important to research any moneylender you’re considering borrowing from.
How do you know if you’re getting a good deal?
You can do a few things to ensure you’re getting a good deal from a bank or moneylender.
Begin by comparing interest rates. Make sure you compare the annual percentage rate (APR) rather than just the interest rate, as it includes any fees and other charges that may be incurred.
Second, consider the repayment terms. Many lenders may claim low monthly payments, but the total amount you’ll repay throughout the life of the loan may be much greater.
The key is to ask for a breakdown of the loan, including the monthly interest rate, and other charges. Never miss your chance to read the terms and conditions, as this will definitely save your life before taking the loan.
Finally, consider any additional fees involved with the loan, such as origination charges or prepayment penalties. You can be confident that you’re receiving the best possible price for your loan by doing your homework and comparing rates.
How do you compare interest rates between banks and moneylenders?
When looking to borrow money, it’s important to compare interest rates between different banks and moneylenders.
Interest rates can vary widely, and the difference between a high and low rate can mean thousands of pesos in interest over the duration of the loan. There are a few different ways to compare interest rates. One method is to use an online interest rate calculator.
You’ll need to enter some basic information about the loan, including the amount you’re looking to borrow and the loan term.
Once you’ve entered this information, the calculator will show you the interest rate offered by different lenders.
This can be a helpful way to get a quick overview of rates, but it’s important to note that these rates are only estimates. The actual rate you’ll probably get may be higher or lower.
What’s the best way to pay back your loan?
There are a few different ways to pay back your loan, and the best way will depend on your circumstances. If you have a large lump sum of money, you may want to consider paying off your loan in one go.
This will save you money in interest payments and the quickest way to get rid of your debt. It’s best to “stop the bleeding” in your pocket and prioritize paying debts before anything else, especially if the interest rate is high.
However, if you don’t have a lot of money available, you may want to consider making regular monthly payments. This can help to reduce the amount of interest you pay over time and may be more manageable for your budget.
Whatever option you choose, make sure that you keep up with your repayments to avoid penalties or additional charges.
Final thoughts
Banks are a great option when you need to borrow money. They have low interest rates, and they’re willing to work with you if you have trouble making your payments.
Moneylenders can be a good option if you need money quickly, but make sure you understand the terms of the loan before signing anything. Interest rates can be high, so it’s important to compare them with bank loans before making a decision.
If you have good credit standing and you want to get low interest rates and deals, then you’d be better off borrowing money from a bank. However, they ask for more requirements than moneylenders, and the release of funds may take a few days or so.
In this post, we have outlined the benefits and drawbacks of borrowing from each type of lender, so you can make an informed decision about which option is best for you.
We hope this information was helpful! If you have any questions or would like more advice, please feel free to leave a comment below or subscribe to our newsletter.