Installment Loans: The Full Guide

What is an Installment Loan?

The main characteristic of an installment loan is the option for you to pay the total loan amount in fixed, scheduled payments – typically monthly. The scheduled payment is towards the principal amount and the interest charged.

Installment loans typically include the principal loan amount, interest rate, and loan term. Because the repayment is fixed and scheduled, borrowers can adequately budget their finances and pay the monthly amortization.

Types of Installment Loans

Installment loans can be secured or unsecured and can be of different product types: Mortgage, Auto, or Personal Loans.  

Secured Loan

A secured type of loan requires you to present collateral for approval for the installment loan. Usually, mortgage loans will hold the property used as the collateral, and the vehicle for which the auto loan is applied will also be the collateral. 

Unsecured Loan

Installment loans that don’t require collateral are considered unsecured loans. Usually, the basis of the approval for this type of loan is your creditworthiness, as evidenced by your credit score and ability to make repayments based on the income or assets owned. 

Mortgage Loan

A mortgage loan is a specific loan product for home financing. Usually, the repayment term for a home loan can be up to 20 to 30 years, with a fixed interest payment and regular monthly payment schedule. 

Auto Loan

An auto loan is an installment loan if you intend to purchase a car but cannot afford to pay cash outright. Depending on the lender, the repayment term for an auto loan can be up to 36 months for used vehicles or 48 months for brand new cars with a fixed interest rate and monthly payment schedule.

Personal Loan

Personal loans, also known as multi-purpose loans, are ideal for different financial needs. The purpose could be starting a business, consolidating debts from various lenders, family vacations, important events, school tuition, etc. It is often unsecured and may require higher interest rates than other installment loans. 

Buy Now Pay Later

One of the popular products of installment loans now is the Buy Now Pay Later option, which falls under consumer financing or retail installment loans and is famous for online purchases. This method allows you to purchase goods – usually appliances, gadgets, electronics, or other fixtures – and pay a downpayment. The balance amount (often interest-free) can be paid in installments, spread across an agreed period of time. In the Philippines, the BNPL works well when you purchase items from merchants and settle the payments to the respective third-party loan providers. 

Brands that Offer BNPL

BDO Buy Now, Pay Later

BDO and BDO-issued Amex cards qualify for this promo in all of the partner stores of BDO. When you purchase the items, the monthly installment payments can spread out for up to 24 months at 0% interest, while up to 36 months of repayment will require a 1% add-on rate per month. 

Home Credit Consumer Loan

You are not required to have a credit card to avail of this loan, and you can visit any partner stores and inquire about the product. The loan application is immediately processed, and you will pay the downpayment. The interest rate depends on the downpayment and the repayment term chosen, and Home Credit will charge a processing fee based on the financed amount. 

Shopee SPay Later

This product is only available for qualified Shopee users wherein the account owner has a credit limit and can freely purchase items with an installment plan for up to 12 months. To cover the loan process, Shopee charges a processing fee of 0-2% in addition to the interest rate, ranging from 1 to 5% of the total order. 

Who Can Use the Different Types of Installment Loans?

Anyone can avail of installments loans, especially if they need them for urgent needs but lack the funding to pay the loan back in full within a short period. Some people prefer to pay in installments to manage their finances, especially when purchasing a home or a vehicle. 

Those with stable income will use the loan proceeds to address their personal needs, such as additional business capital, medical expenses, or debt consolidation.

Requirements for Installment Loans

Here are the typical requirements for the different types of installment loans:

Mortgage Loan

• Duly filled application form
• Valid government-issued ID
• Income Documents 
  • Employed Individuals: Certificate of Employment and Compensation, Income Tax Return, Payslips or Bank Statements
  • Self-Employed Individuals: Audited Financial Statement, Bank Statements, or Lease Contract
  • Corporate Borrowers: Business Registration Documents, Suppliers/Customers Contact Information, etc. 
• Collateral Documents
• Contract to Sell / Reservation Agreement from the Developer
• Floor or Building Plan, Bill of Materials, etc. 

Auto Loan

• Completed loan application form. 
• 1-2 valid government-issued ID
• Proof of Income (either of the following):
  • For locally employed: Certificate of Employment, Income Tax Return
  • Self-Employed: Income Tax Return, Bank Statement, Business Registration
  • OFWs: 3 months proof of remittance, Latest Crew Contract or Consularized Certificate of Employment

Personal Loan

• Valid government-issued IDs
• Income Document
  • Employed (1-month payslip, certificate of employment and compensation, or latest Income Tax Return)
  • Self-Employed (latest business ITR or audited financial statement)
• Completely filled-out loan application form

Buy Now, Pay Later

• 1 or 2 valid government-issued IDs
• Proof of Income

In What Situations Should One Apply for an Installment Loan?

Before applying for an installment loan, you must be confident that you are financially prepared to commit to paying the monthly installment.

Here are a few situations one must be experiencing before taking out a loan:

Genuine Need But Lacking Cash

Some people might have an urgent need for cash but cannot afford to repay the total amount in one payment. Installment loans help people adjust their budgets to accommodate meeting the needed money to make a purchase.

Tight Budget 

Many low-income earners barely get by daily. Between paying for food, shelter, transportation, school tuition, and other expenses, some people can scarcely set aside money for savings or make additional purchases. Installment loans could come in handy to get by. 

Unexpected Expenses

It’s inevitable to pay for sudden purchases and emergencies, whether it’s sickness or the death of a family member. It’s unfortunate for people who lack emergency funds. When this occurs, one may struggle to make a one-time payment and might not have other sources to get the money. 

Big-Ticket Items and Large Purchases for Business

Big-ticket items such as furniture and appliances are generally expensive, and you may prefer to avail of installment plans to pay off the things while managing your monthly budget. Meanwhile, large consumer purchases can include a vehicle, house and lot, or it could also be for acquiring machinery or equipment for the business. 

Financial Institutions that Offer Installment Loans

Here are some of the financial institutions that offer different types of installment loans in the Philippines:

Mortgage Loan

UnionBank Home Loan

Loan Amount: will depend on the contract price

Down Payment: at least 10%

Interest Rate: 

• 7.00% fixed for 1 year
• 7.50% fixed for 3 years
• 8.25% fixed for 5 years
• 10.00% fixed for 10 years
• 11.0% fixed for 11-20 years

Loan Repayment Period: 1 to 20 years

Security Bank Home Loan

Loan Amount: minimum of ₱1,000,000 up to 80% of the appraised value

Interest Rate: from 6.25% to 10.00% per annum

Minimum Monthly Income Required (Joint Gross): ₱50,000

Approval Period: within 10 banking days

Loan Repayment Period: up to 20 years

Eligibility

• Between 21 to 65 years old. 
• Must be continuously employed for 2 years. 
• If self-employed, must be running a profitable business for 3 years. 

Auto Loan

BDO Auto Loans

Loan Amount: will depend on the vehicle value

Down Payment: 20% to 40% of the vehicle value

Interest Rate: 

• Brand New: starts at 17.33% per annum (36 months)
• Pre-Owned: starts at 14.11% per annum (24 months)

Repayment Period: 

• Brand New
  • Personal Use: up to 5 years
  • Business Use: up to 3 years
• Pre-owned
  • Personal Use: up to 4 years
  • Business Use: up to 2 years

Eligibility

• Must be a Filipino citizen or a foreign nation (subject to visa qualifications).
• Between 21 to 70 years old.
• Employed or self-employed with a stable source of income. 

BPI Auto Loans

Down Payment: as low as 15%

Interest Rates:

• Brand New: starts at 9.36% per annum (12 months)
• Pre-Owned: starts at 14.26% per annum (24 months)

Minimum Monthly Income Required (Joint Gross): starts at ₱30,000

Repayment Period: up to 5 years

Eligibility

• Must be a Filipino resident or a foreign nation with a stable Filipino co-maker.
• Between 21-65 years old. 
• Employed full-time or owns a business. 

Personal Loan

Citibank Personal Loan

Loan Amount: ₱100,000 to ₱2,000,000

Interest Rate: 26.9% per annum 

Minimum Gross Salary Requirement: ₱250,000 per annum

Repayment Period: 5 years

Eligibility

• Must be a Filipino resident with a Philippine billing address. 
• Borrower must be at least 21 years old but not over 65 years old. 
• Must have a Tax Identification Number (TIN). 
• A principal cardholder with Citibank. 

Maybank Personal Loan

Loan Amount: up to ₱1,000,000

Interest Rate: 1.3% per month 

Minimum Gross Salary Requirement: ₱25,000 per month

Repayment Period: up to 3 years

Eligibility

• Filipino citizens should at least be 23 years old upon loan application but should not be more than 65 years old upon loan maturity. 
• Must have an active landline, work, or mobile phone number. 
• Must be in the same profession or business for the past 3 years.

Buy Now, Pay Later

Atome

Atome is a mobile app that lets shoppers purchase items and split them into three equal payments without zero interest. You can browse local stores such as Rustan’s, Zalora, and The SM Store and select the items you want to buy. 

You will see the total amount upon checkout, and since it’s divided into three installments, the initial payment is paid upon purchase. The other two are spread 30 days apart with no interest or additional charges. 

Loan Amount: Will depend on the price of the item. 

Interest: None

Repayment Term: 3 Installments (first one after purchase, with second and third installments 30 days apart)

Comparison to Other Types of Loans

An installment loan’s main characteristic is the flexible repayment option which requires borrowers to pay equal monthly installments over a set period of time. Other types of loans require different payment agreements such as the below:

Payday Loan

A payday loan is an excellent option if you need immediate funds before your payday. You can extend your credit based on your salary, but the lender or financial institution will charge you a higher interest rate, and you must pay the amount in your next paycheck. Other terms used for Payday Loans are Cash Advance or Check Advance Loans. 

Revolving Credit

A revolving credit functions just like a credit card, and you are pre-approved of a credit limit that you can use, depending on the need up to the credit limit allowed. Unlike installment loans, a revolving credit line is replenished when the borrower has made a payment. 

The interest a borrower will pay will only be towards the used portion of the credit limit, but usually a higher interest rate than installment loans. 

Conclusion

Many advantages accompany installment loans, including payment flexibility, higher loan limits, and a more straightforward application process. 

Through installment loans, many borrowers can afford what they need as long as they qualify for the specific installment loan type they are applying for. Although packed with many benefits, any borrower must still consider the drawbacks of borrowing money and the costs involved.