Due to the painstaking rise cost of goods, and other present factors, more Filipinos are trying to avail consumer loans making them susceptible to a debt trap or what we refer to as loan delinquency.
In fact, according to Bangko Sentral ng Pilipinas (BSP), the loan delinquency rate in the Philippines significantly increased to 4.43% in April 2024 from 4.30% the previous month.
With the data presented, it might be the best idea to learn what delinquent loans mean, and its repercussions, as such, we are here to give you 5 tips to avoid loan delinquency.
What is Loan Delinquency?
Loan delinquency is also called loan default in the Philippines. This pertains to a borrower’s inability to make scheduled loan payments by the set deadline.
In a more comprehensive explanation, it is the nonpayment of, or payment of an amount less than, the minimum amount due or minimum payment required for at least three billing cycles.
What happens after loan delinquency?
Inevitable circumstances after you take out a loan may occur, whether you were involved in financial emergency or income loss, among others, you must know the repercussions that await this course of action.
If you have a delinquent loan, your worst come scenarios include accruing fees and charges, damaging your credit history and credit score, filing civil case by the lender, and possible hostile calls from aggressive debt collection agencies which might affect your mental and well-being.
Tips to Avoid Loan Delinquency
You may always get a loan especially if you need it for your big goals in life, however, ensure that you know these effective tips beforehand to avoid loan delinquency.
Tip 1: Ask yourself: Can I actually afford a loan?
Consider your current financial situation. What are your income and expenses? With the remaining budget you have after all your expenditures, can you comfortably add up loan payments?
Tip 2: Create an Emergency Fund
Changes in income or expenses, or loss of job case, are inevitable, so its advisable to build an emergency fund worth at least five times of your monthly salary.
Tip 3: Learn the Loan Terms
You will face financial jargon on a loan contract and it can be quite overwhelming and intimidating. But you can always learn terms you don’t understand including annual percentage rate, collateral, maturity, principal, among others.
Tip 4: Practice Good Payment Habits
Try budgeting your money wisely where you may just trim unnecessary expenses and allocate more budget toward your loan payments. To ensure timely payments and avoid any failed due dates, you may set reminders on your phone or Google Calendar.
Tip 5: Negotiate with your Lender
If all fails to save you, you may opt to negotiate with your lender by telling them you are having difficulties with your loan payments, as such, they may provide you numerous solutions such as extension till you can pay them back, partial payments till you can pay in full, or a loan restructuring so you can have more favorable terms.
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There you go, before applying for a loan application, make sure to know the ins and outs of proper financial planning. A calm and proper communication with your lender might also save you from the pitfalls of loan delinquency.