There are plenty of instances when it’s a smart move to borrow money. If you’re buying a home or starting a business, for instance, then a loan can help you achieve your goal while making the financial burden a little lighter for your household.
Even if these big commitments are still far in the horizon for you, knowing the different programs to borrow money online in the Philippines is still a smart move. These options can still come in clutch and offer you a greater degree of financial flexibility in case you’re faced with emergencies.
For instance, there’s Maya Personal Loan, where you can borrow up to Php 250,000. While approval is still subject to a credit check, the entire process is still faster than traditional loans offered by banks and other lenders.
Before you fill out that loan application, however, it’s crucial to determine exactly how much you should borrow. Requesting too little might leave you in a bigger financial bind, while borrowing too much can lead to unmanageable debt.
Understanding the right loan amount ensures you meet your financial goals without unnecessary financial strain. Here are key considerations to help you decide how much you can afford to borrow.
Understand What the Borrowed Funds Are For
Why do you need a loan in the first place? Are you financing a home, covering medical expenses, or consolidating debt? The purpose of the funding typically dictates the loan amount and structure available to you. For example, a home loan requires careful calculation to cover the purchase price and additional costs like taxes and fees. On the other hand, a personal loan for an emergency should be just enough to cover immediate needs without creating long-term financial burden.
Understand How Much You Can Comfortably Pay Back
Before committing to a loan, take a good look at your finances and assess your ability to return what you will owe. This means evaluating your monthly income, regular expenses, and other financial commitments on top of the loan that you’re planning to take on. A good rule of thumb is that your total monthly debt payments—including the new loan—should not exceed 30% to 40% of your income. If you go beyond this percentage, there’s a good chance that it can lead to late payments and penalties.
If you’re looking to boost your income, especially to help with repayments, consider opportunities to earn money online by sharing your unused internet bandwidth, doing daily tasks, or selling products through e-commerce platforms. This additional income can help you stay on track with your loan payments and build financial stability.
In case there are fluctuations in your income, factor in a buffer to your budget. This will ensure you can meet your obligations even during financial downturns.
Factor in Interest Rates and Loan Terms in the Total Amount
The cost of borrowing is heavily influenced by interest rates and loan terms. A lower interest rate reduces the total repayment amount, making the loan more affordable. Additionally, loan terms—whether short-term or long-term—affect monthly repayments. While longer loan terms might offer lower monthly amortizations, they often result in higher overall costs due to accrued interest. This is why it’s practical to compare offers from different banks and lenders to secure the most favorable terms before making a decision.
Calculate Monthly Repayments and Include the Amount in Your Budget
A common mistake borrowers make is not fully understanding their monthly repayment obligations. Use an online loan calculator to estimate how much you’ll need to pay each month based on different loan amounts and terms. This ensures that the repayment will fit comfortably within your budget without compromising fixed expenses and savings. If the estimated repayment seems too high, consider adjusting the loan amount or opting for a longer repayment period to make it more manageable.
Factor in the Total Loan Cost
Understanding the true cost of borrowing ensures you don’t commit to more debt than necessary and helps you compare lenders effectively. Many borrowers make the mistake of focusing only on the principal amount and overlook the additional costs associated with loans. Remember that beyond interest, loans often come with processing fees, insurance, and other hidden charges that can increase the total amount you have to pay.
Evaluate Your Debt-to-Income Ratio
Banks and lending institutions assess your debt-to-income (DTI) ratio to determine if you can handle additional debt. This ratio measures your total debt obligations relative to your income; keeping a healthy DTI ratio helps you manage loan repayments comfortably without financial distress.
A high ratio may limit your borrowing options or result in higher interest rates. To improve your chances of securing a loan with better terms, try to lower your existing debt first before applying for a new one.
Consider Collateral Requirements
Some loans, such as some home or car loans offered by traditional banks, require collateral to secure the borrowed amount. Thus, it is called a secured loan. If you’re applying for one, assess whether you’re comfortable risking your assets. Losing your collateral due to non-payment can have serious financial and lifestyle consequences. If possible, explore unsecured loan options or ensure that the loan amount you take is one you can realistically repay to avoid the risk of forfeiting valuable assets.
Watch Out for Prepayment and Late Payment Penalties
Many borrowers aim to pay off their loans early to save on interest. This shows good initiative, but you also need to remember that some lenders impose prepayment or pre termination fees. Similarly, late payments can result in penalties and impact your credit score. Thus, when deciding on the right loan amount, make sure you understand the lender’s policies on early repayments and late fees. If you’re keen on paying your loan early, it’s a good idea to choose a loan that offers flexible repayment terms to help you avoid unnecessary costs.
By carefully evaluating these factors, you can determine the right loan amount that aligns with your financial needs and repayment capacity. This, in turn, can help you make informed decisions and ensure that the loan serves its intended purpose without creating unnecessary financial stress.
