Where Should I Borrow?

According to Diomampo, the bank is still your best bet. Scout around from among the different types of banks - the big ones are the commercial banks; the smaller ones the savings, rural, and development banks. Commercial banks,says Diomampo, can manage to charge lower interest rates than rural banks because they are the bigger players in the market.

The next question then is: Are you qualified to get a loan? Banks look at three C’s: character, capacity to pay, and collateral. Banks are particular about character. Some may have the capacity to pay but may not be of good character. Collateral is another issue. Not any lot will do. The location has to be considered.

Remember too that most banks only grant loans to regular clients, so approach the branch where you have an account. Bank staffers will ask for your income tax, financial statements, and a photocopy of your land title. You will also be asked to fill up an application form. Processing time takes for to six weeks.

Aside from banks, you can also go to lending investors and finance companies. A list is available from the Securities and Exchange Commission. Interest rates are fom 18 to 24 percent.

Private lenders are another option, but their interest rates can be astronomical. For small loans, you can borrow from pawnshops.

Real-estate developers and car dealers also offer in-house financing if you are buying real estate or a car. In this case, Diomampo suggests that you compare the interest rate and loan tenure with those offered by our bank. “If the loan is extended over a longer period in years, then you monthly amortization is lower, but the interest is higher,” he says.

An important reminder: Read the fine print before signing. Things to look out for: high interest rates, pre-payment penalties, and balloon payments. These all add up to bury you further into debt.