The new generation Filipinos, referred to as millennial citizens (born between the years 1980 to lat 199) are considered to be one of the youngest generations in the world. Financial analysts believe that because of this the Philippines should be in an ideal situation to gain and profit from any economic situation it’s in. Analysts believe this new generation Filipinos can be considered exceptional and should have no problem solving any financial problems. However, BORROWING money in the Philippines is at present quite common and rampant. Most of them (even if earning a good sum of money) still live on a paycheck to paycheck lifestyle and this is perhaps due to the following reasons.
Most Filipinos have been known to have an above average intelligent quotient (I.Q.) but they are not as literate when it comes to the subject of money and CREDIT. The Philippines according to statistics is one of the least knowledgeable when it comes to handling their finances. Among its population less than 1% are financially intelligent when it comes to investing in stocks, bonds, mutual funds and other profitable ventures. Second, Filipino workers today are ill prepared for any financial emergency. This is one of the major reasons why they end up borrowing money from traditional and alternative lenders. Desperate ones even go to the length of borrowing from loan sharks, pawning their hard earned assets and even selling or pawning valuable properties just to ease their financial dilemmas.
There is a Solution
No matter how serious the problem is, (as they say) there is always a solution. Financial problem is quite common not only in the Philippines but all over the world. Knowing how to face and tackle a problem (financial or otherwise) is how you overcome it. Like any other financial problem taking hold efficiently of your expenses is one of the solutions. Another is to start and find other source of income. Go into sales on your spare time. There is always a way out of a financial dilemma and putting your finances in order is your best solution.
The most important aspects in borrowing money are the interest and the full cost of obtaining the loan value. The actual goal of the lender is to get the greatest rate return with the lowest cost as much as possible. Lenders need to do this to maximize their profits.
And to secure a loan, assets like house, car, and business are used as collateral. Another popular option is using a credit card or the borrower’s signature. There are also some factors that will determine when you should borrow money from lenders.
First is your Income. Money should really be only borrowed against assets that produce an income. Commercial and investment real estate and other business operations produce income since the asset is used in business to provide a valuable service to another for money. This income can then be used to service the debt owed on the asset. Personal assets such as primary residences, cars, and personal lines of credit do not produce income.
The appreciation. One may borrow money against assets that would, over the long-term, appreciate in value. Even if the income for the use of the asset did not provide enough income to pay off the debt, the eventual sale of the asset would be at a higher value in the future so the debt could be retired upon sale. Commercial and investment real estate have the potential for appreciation as well as businesses as they grow in value through expansion. Consumable assets such as cars, boats, and personal credit lines do not appreciate but decline in value.
The tax benefits. The government will pass laws that allow certain types of indebtedness to have preferential treatment in the tax code. When you borrow money for business purposes, the interest and other costs associated with the loan may be tax-deductible. Since you are receiving a rebate on the taxes you would otherwise owe, your cost to borrow the money is less. This creates an even larger gap between the borrowing cost and the value realized from putting those assets to productive use.
When you are determining whether to borrow or not, you will have the greatest chance of profit if all these factors exist in the borrowing decision. Wise borrowing means to borrow the money at the lowest net cost and generate the greatest value possible with the proceeds. Business applications give the best potential while personal indebtedness has the highest risk of not achieving the desired results.
There will come a time that you will need cash because of some unfortunate events that we don’t have control of. You may need it for your child’s educational fees, piled up bills, medical needs or maybe you just really run out of cash to last your family till the next payday. And the only solution that you will think of is to borrow some money. However, before you start thinking of getting a loan from a lender, you still need to determine the real reason why are you borrowing money.
Here are some guidelines that you may need to know about borrowing money:
Know your limits before borrowing money. Borrowing money without knowing the limit of your cash flow could be very dangerous. Before you borrow money, try to look into the source of your income before deciding on a certain amount to borrow. It will be very bad to borrow an amount that is higher than what you earn as salary or income. Your borrowing should be a function of what you earn as income.
Ensure the certainty of your cash flow. Most people borrow money because they have the hope that one way or the other money will come for them to pay back. It’s not really a bad idea to have such hope; it only becomes a bad move when you borrow without the certainty of your cash flow. If the source of your repayment is not certain, try as much as possible to give it a second thought. Alternatively, find out other ways of calming the situation down pending when you will be certain of your source of repayment and its consistency.
Lastly, borrow for good reasons and not just for fun. Borrowing money without a reason is like building a house without the necessary materials needed to make it become a real home. Before you borrow money, make sure you have considered the reason why you need such money and the purpose which the money will serve. Do not make the mistake of borrowing just for fun when there are no plans set aside to pay back when due. Always remember that the money you borrow for your personal use does not have a corresponding return for repayment.
You will learn that when BORROWING money you will encounter two general options that can be attached to the loan. A MONEY LENDER would normally ask you whether you would want the loan to be secured or unsecured. Generally, collateral is needed when you opt for a secured loan. Collateral is an asset with a value that is the same or more than the amount being borrowed. Secured loans are normally used to borrow large sum of money. This is the main reason borrowers are required to put up collateral on the loan. Lenders when being ask for a large amount would normally make sure that the risk they would take would not be too big and having the loan secured by the borrower would be the best resolve. In return, lenders give a lower interest rate on the loan. Secured loans are riskier for the borrower considering that he might just end up forfeiting the collateral in the event that he is not able to repay the loan. Secured loans are also known as Home equity or home loans wherein you use the remaining value of your property as collateral; they are also known as first charge mortgages if this is the first time that the property is mortgaged or put up as collateral and second charge mortgage if there is a need to restructure the first mortgage to get additional money for the property.
Pros and Cons of Secured Loans
The advantages of getting a secured loan are lower interest that one have to pay on the loan (and this is because of the collateral you have put up on the loan) and second the loan is usually amortized thereby giving you an easier time repaying the debt. You can even negotiate the duration on how long you would want to pay the loan. The main disadvantages are the probability of losing your home in the event of a default and more often than not, secured loan incurs variable rate of interest. This means that there is a chance that repayment terms may increase depending on the movement of the interest rate.
BORROWING money for a very good and valid cause is not all bad. More often than not when discussion regarding PERSONAL LOAN is brought up it is usually the negative effect that is taken into view. The truth is borrowing money also has its positive effect on people. Loans have always been a part of an individual’s life. Since the early days, the use of Credit has always been a part of running business, and instilling financial stabilities in families. The rule of thumb in borrowing is to make debt work for you. Before even thinking of taking out any kind of loan from a MONEY LENDER, it is best to be clear with yourself whether you really need to borrow money or not. Once you’ve established this, the next step is for you to fully understand what would be the terms of the loan. The main point in every loan is that you just don’t pay back the principle amount because there will always be an interest that would go with it. And it is the interest rate that would probably put you in more financial dilemma or hopefully bring you out of it. There are many different types of loan available in the market and all of these types should be well understood before availing them.
Different Types of Loan
Three of the most common loans today are Home and car loans and credit cards. Home loans are one of the most common loans that are being availed off and it is also one that provides the largest amount that can be borrowed. It is also has the longest repayment terms in the CREDIT market. The interest in this loan can either be fixed or variable so it is important that you exactly know the type of interest it will incur. Car loans have different loan terms but repayment terms are usually 1 to 6 years. Because of so much competition on sales, car dealers come up with all sort of promotions just to make a sale so it is wise to check out details of the loan prior to getting one.