Guest Post: Seven Top Risks of Salary Loans
I found it interesting how someone working for a loan provider pitched an article for the risks of taking out a salary loan. But the fact remains that salary loans, when taken out by someone unaware of its risks, can easily morph into a hydra, growing more heads and becoming more daunting with the passage of time. No one needs such a monster in their presence, much more the loan provider that only wants to be paid back its money (with interest of course) at the end of the day. So before taking out a salary loan, be sure to think twice or even thrice about your decision, and when you do take one out, be sure to pay on time to avoid the high fees and penalties.
Also, I am not affiliated with this loan provider, or any loan or service provider for that matter, so deal with them at your own risk.
Applying for salary loans in the Philippines can be an extremely daunting task. Despite the large number of loan providers out there, you always need to look out for the ones that have the best offers. In the Philippines, loans have high APRs (annual percentage rates) and these are usually overlooked by people applying for salary loans. APRs is just one of the things to consider when taking out a loan, here are some of the risks that you have to be aware of when taking out a salary loan:
Risk # 1 Unregistered or illegitimate lenders
When applying for a salary loan, be sure that you are dealing with a legitimate and registered company. There are various loan sharks out there that are not registered. These loan sharks are best avoided because they do not follow proper rules; moreover, they charge interest rates that are tremendously higher than usual.
Risk # 2 Unforeseeable events
Applying for loans in the Philippines is not much different than anywhere else in the world, in that something may happen that might severely hinder your ability to pay off your loan (i.e. an accident, death in the family etc). One general option is to obtain a PPI (payment protection insurance), which you can get from a company different from the one you applied to for your loan. Just be sure to read the fine print and all the exclusions they have.
Risk # 3 Debt cycle
Salary loan is usually not a smart option because loan companies know that an ordinary individual cannot afford to pay the loan back without taking on another loan. You tend to lose more money paying interest because you repeatedly apply for loans to cover the interest you just paid. It is a never ending story that keeps you in debt for years.
Risk # 4 Lowering of credit rating
Payday loans also tend to lower your credit rating, such that when you apply for a long term loan at a bank, or apply for an account at a furniture or clothing retailer, your application gets declined most of the time. This happens because your credit rating is so low.
Risk # 5 Late/partial payment charges
Another issue you must consider is your ability to pay your loan in full before the due date. Companies charge you for late payments, so read the small print and make sure that the loan company you choose minimizes charges on late or partial payments.
Risk # 6 Having a co-borrower
The loan policy in the Philippines asks you to have a co-borrower sign with you, and that he/she also present valid documentation. Having a co-borrower may backfire on you when that person begins to talk to everybody about your loan arrangements. On the other hand, if you are working among one of the top 100 corporations in the Philippines, you stand a better chance of being approved for higher loan values.
Risk # 7 Higher interest rates
Some loan companies may allow unsecured loans, and this means that the interest they will apply will be higher than that of a secured loan. They see you as high risk, hence making you pay more for them to trust you with their money.
If you have already become a victim of the negative effects of salary loan risks, don’t let it happen again. This list of risks related to salary loans in the Philippines is useful to think about to prevent you from falling into any future debt traps. Read over these risks and then decide if you still want to go ahead with applying for a salary loan. Having extra cash for this kind of loan may initially make you feel good, but this feeling does not last long. When the time to pay back comes, the trouble starts. Be a good decision-maker, and always evaluate the risks involved.
Maricor Bunal has been a Project Manager and Content Writer for a long while. Her passion in writing is her main drive in crafting articles that are engaging, informative, and meaningful. Her partnership with Loan Solutions PH has given her a whole new opportunity to take writing to a whole new level.