Secured Loans for Filipinos: Benefits, Types, and How to Apply
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Have you ever been in a situation where you needed a large amount of money for something big that you want to invest in, like your home renovation or even a business? Ever wondered if there is a way that you can easily obtain the funds here in the Philippines?
You’re not alone in this situation as 57% of Filipinos (1) encountered problems when they were trying to find a promising solution. This even includes getting loans from traditional banks. For many of our kababayans, having access to secured loans offers a promising and safe solution when it comes to solving any financial needs, whether it’s for capital, education, or emergency expenses.
In this comprehensive guide, we will try to explore everything you need to understand about secured loans in the Philippines and why they are important. At the same time, a few of you might’ve heard about unsecured loans and we’ll compare both in this article. Whether it’s your first time borrowing or exploring other financing options, keep reading as we’ll help you make informed decisions on how to properly and safely secure a loan.
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What is a Secured Loan?
A secured loan, also known by some as a collateral loan, is a type of lending that requires you, in this case, the borrower, to provide collateral as a guarantee for repayment. The collateral can be anything as long as it is a tangible asset ranging from vehicles, land, property, or even a savings account. This type of loan has been popular with many lenders as it provides them with an added layer of security. In turn, this allows them to recover their funds by claiming the collateral if the borrower defaults.
Secured loans have also been a popular choice for Filipinos looking for a significant amount of financing for situations like home purchases, business expansions, capital to start one, and other expenses.
Secured vs Unsecured Loans
To help you understand the comparison between secured and unsecured loans, we prepared a simple table to visualize the differences between both types of loans.
| Feature | Secured Loan | Unsecured Loan |
|---|---|---|
| Requires Collateral/s | Yes | No |
| Interest Rates | Lower | Higher |
| Amount to Loan | Higher limit for loan value | Lower limit for loan value |
| Risk for Borrower | Loss of collateral if the borrower defaults | No collateral risk |
| Approval Requirements | Flexible, credit score less critical | Rigid, requires good credit score |
While choosing secured loans will involve collaterals, unsecured loans rely solely on the borrower’s creditworthiness. A good example in this case is pawning jewelry (sangla) or just getting a car loan which are considered as collateral loans, while personal loans without collateral are types of unsecured loans.
How Does Collateral in Secured Loans Work?
Collateral serves as the main foundation of lending agencies when it comes to secured loans. It’s the main asset that the borrower offers to the lender as a point of security for both. When the time comes that the borrower defaults on the loan or simply is not able to pay, the lender has the right to seize the collateral and recover from their losses. The majority of Filipinos offer such properties as their collaterals:
- Real Estate: One of the more common options when it comes to collateral for housing or mortgage loans is real estate, houses, or land (lupa). Real estate is considered by many lenders as a highly valuable collateral because of its stable market value. Borrowers pledging real estate may receive higher loan amounts and more favorable terms all thanks to its higher value.
- Vehicles: Cars, motorcycles, and other vehicles can help secure auto loans. The vehicle’s condition, age, and quality can highly influence the loan through its collateral value. At the same time, newer vehicle models can typically offer higher appraisal rates. When using a vehicle as collateral in the title loans, the loan amount you can avail of typically depends on the vehicle’s appraised value. Most lenders in the Philippines offer loans ranging from 70% to 80% of the car’s current market value.
- Savings or Investments: Other borrowers choose to pledge their fixed deposits or time deposits, bonds, or mutual funds as collateral for secured loans. These types of assets are ideal for borrowers who prefer not to use physical assets as their main collateral.
To provide an example, let’s say Juan applies for a collateral loan to start a small negosyo (business). He uses his family’s farmland as collateral for the loan. While this loan provides Juan with a lower interest rate and a higher loan amount, he risks losing his parent’s farmland. This highlights the importance of being careful when making big financial decisions.
Learn How to Get
Title Loans in the Philippines: Your Complete Guide to Asset-Based Borrowing
Types of Secured Loans
Secured loans may cater to different financial needs. Some of the common types of secured loan examples include:
Secured Personal Loans
In secured personal loans, borrowers can use personal assets to secure loans for different purposes like medical emergencies, educational expenses, or other significant events. These personal assets can vary from jewelry all the way to a house. These loans are way more flexible compared to other loans and can be customized to meet unique financial needs. For example, in order to qualify for a loan, Aiah might use jewelry or other high-value appliances as collateral to secure funds quickly.
Where to get such loans? Banks, pawnshops, private lenders, and online lending platforms are common options
Auto Loans
When trying to get a new car for your personal use, business, or for your family, financing is one of the popular options for most Filipinos. These loans help our kababayans get a new car without the need to spend much money upfront. With this process, the vehicle itself already serves as the collateral, and auto loans often come with competitive interest rates and fixed repayment schedules.
A likely scenario would be: one day, Maloi decided to get a new car, a Toyota Vios 2025. The car’s total value was ₱732,000. With an auto loan, Maloi was required to make a down payment of 20% of the car’s total value, which amounted to ₱146,400 (20% of ₱732,000). The remaining balance of ₱585,600 was financed through the loan.
- Total Car Value: ₱732,000
- Down Payment (20%): ₱146,400
- Loan Amount: ₱585,600
- Loan Term: 60 months
- Interest Rate: 6%
- Monthly Installment: approx. ₱11,277
Mortgage Loans
Financing a house might be a risky choice when it comes to acquiring a new home for your family. However, it’s important to take into account that 42.6% of total loan transactions in the Philippines consist of mortgage loans (2). Mortgage loans have been an ideal choice for many Filipinos to own a property as they can easily help acquire a house and lot for a new and starting family with low interest rates. For mortgage loans, your land, house, or any asset you purchase under this type of loan will automatically be your collateral. At the same time, the maximum collateral value for a real estate loan has been set to 60% by the Bangko Sentral ng Pilipinas.
Business Loans
Are you starting a business as a small entrepreneur with a limited budget? Entrepreneurs often choose business loans to help finance and start their business ventures. In this case, the business is your collateral.
For example, Daniel decides to start his own lutong bahay restaurant, he’s convinced to get a business loan to get his restaurant started and rolling. Using the borrowed amount, he purchases a few pieces of equipment. All the equipment purchased under the terms of the loan will be converted to his collateral.
Agricultural Loans
Specifically designed for farmers, these loans use farmlands, crops, or equipment as collateral. Agricultural loans are usually used to fund seed purchases, irrigation systems, or livestock as capital for their business. Eddie, a Filipino farmer or magsasaka can secure a loan using their harvest as collateral to invest in high-quality seeds and fertilizers.
Construction Loans
For those who are looking to construct a small house, renovate their existing home, or build any kind of structure, they can secure construction loans. Construction loans may use any unfinished property or land as collateral for the loan. A construction loan is often disbursed in stages based on project milestones.
Where to Get Secured Loans in the Philippines
There are many choices that you can consider when securing a loan in the Philippines. But, these are the more popular and safe options that most Filipinos trust:
Banks
Major local banks like BDO, Metrobank, and BPI offer competitive rates for most types of available collateral loans. These banks provide custom and tailored loan products for different purposes and borrowers. All borrowers who might consider getting a collateral loan through banks should at least prepare important documents like a valid ID, including proof of income, and collateral ownership.
Government Institutions
When banks are not part of your considerations, there are many government agencies that offer collateral loans. These agencies are ones like Pag-IBIG and SSS, which provide affordable loan options for housing and other livelihood needs. They are usually easier to access for normal Filipinos compared to banks and offer lower interest rates. However, take note that for larger loans, these government institutions might not be ideal.
Pawnshops
Local pawn shops in the Philippines like Cebuana Lhuillier and MLhuillier are some of the common and practical options for smaller secured loans. For our kababayans who are interested in acquiring funds for business and other uses, they can easily pledge items like jewelry, gadgets, or even vehicles as collateral for the loan. This option also provides a fast alternative option for secured loans and requires minimal paperwork, making it one of the suitable options for those who need quick cash with tangible assets.
Learn How to Get
Cebuana Lhuillier in the Philippines
Why Choose Secured Loans?
- Lower Interest Rates
To start with, secured loans can have lower interest rates compared to other loan options. How is that possible? You might ask. When you secure a loan with collateral, or in this case, an asset, lenders look at it as less risky. This is because they have a tangible assurance in the form of a collateral in the case that the borrower will default on their loan. When such situations do happen, lenders are more willing to offer lower interest rates compared to unsecured loans. Because there are lower interest rates, the borrower will have a reduced monthly payment, making it easier to manage a lender’s monthly finances and repay the loan on time.
- Tailored Loan Options
There are also different loan options and packages that are designed to fit a different range of financial needs and situations. Filipinos usually apply for a loan to start a new business, get a new car, build a new home, or spend it on emergency expenses. With a different range of repayment terms and amounts, you can easily repay your loan balance through the different approved repayment processes.
- Higher Loan Amounts
By providing the lender with collateral, for example, a property or a car, the borrower shows their commitment to the lender of being able to repay the loan. This added security to the lender allows them to approve larger loan amounts. And for many Filipinos, this means being able to finish significant life projects faster. With a higher and more flexible loan amount, you’ll have more options on what you can use the loaned amount for.
Need money that you can get quickly? Apply quick online loan with just 1 government valid ID and be approved in 5 minutes! Calculate your pre-approved loan amount:
* Interest payments are approximate. The final loan amount and interest rate must be confirmed in your loan agreement after loan approval.
Basic Tips for Choosing a Secured Loan
Before applying for a loan no matter the type, do your own research on the bank, platform, or agency that you will apply from. Check their interest rates and policies, and most importantly understand the general concept of a collateral loan. However, don’t worry as we have a short checklist or guide for you to go through before considering a loan.
- Evaluate Your Financial Stability: Ask this question yourself first, “Can I afford the monthly payments for this loan?” It’s important that you assess and check your monthly income, expenses, and other financial obligations in order for you to pay on time and avoid additional interest and penalties.
- Understand the Terms: Most of us tend to quickly jump into a loan as long as we see a good promo for it online. However, we have to clearly understand the interest rates, repayment methods, and periods, as well as the penalties involved. For example, some loans may have a fixed interest rate, while other banks and platforms may have varied terms.
- Compare Lenders: Spend a few days researching and comparing banks, agencies, and platforms. Take note and understand the interest rates, loan terms, and customer reviews to choose the most reliable lender.
- Prepare Your Collateral: As the major part of a secured loan is the collateral, you need to ensure that the asset meets the lenders’ standards and requirements and that it is in good condition. For instance, properties used as collateral should have updated titles and no existing penalties.
- Check for Hidden Fees: Before submitting the loan application, review the loan agreement one more time to identify any hidden charges, like administrative or processing fees. This is important for you to make sure that you are fully aware of the exact contract agreement with the lender.
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Quick Cash Loan Without Collateral: The Benefits of Unsecured Loans
How To Apply For Unsecured Loans with Digido
If you are in need of money urgently, you don’t have to run to a pawn shop and place your smartphone or laptop as collateral. You can get money fast with unsecured loans from Digido. The process of applying for a loan is not only transparent but quick and easy.This means that the loan that you are applying for can be approved within a few minutes after filling out the form. Digido is one of the most trusted platforms for Filipinos looking for unsecured loans, offering a fast and reliable way to acquire funds online. With an online application and low interest rates, many Filipinos use Digido for housing loans, auto loans, and emergency funds.
1. Create an Account
To start your loan application with Digido, just visit the Digido website or download the mobile application, then create an account online by using your mobile number.
2. Choose the Amount & Fill Out the Loan Application
When applying through the online platform, provide accurate details about the loan amount you need. You can get up to PHP 25,000!
3. Submit Important Documents & Sign Contract
After filling out the application form, this includes your bank account or e-wallet where the loaned amount will be sent. You will be required to upload 1 valid ID to apply for a loan with Digido There’s no need to worry about your privacy, as Digido observes proper data privacy protocols to keep all of your information safe. You will then be asked to sign a contract with Digido as well as a consent form to receive your online loan. First loan with 0% interest rate for 7 days!
4. Receive Confirmation Code
Once the contract signing is finished, Digido’s automated system evaluates your application using advanced algorithms. Many borrowers receive a decision within minutes, and you will then receive a confirmation code through a text message.
5. Receive the Funds
Once Digido receives your confirmation code, you will be able to instantly receive the borrowed funds. You can do all this without leaving your home, at night, or even during the holidays. The entire process is done in real time so you won’t have to wait too long to get your loan.
Conclusion
Loans have been a practical option for many Filipinos when it comes to financing a major investment because of their favorable terms. By being aware of the terms and conditions, risks involved, how-to’s, and more, as well as by carefully assessing your financial situation, you can unlock more opportunities with collateral loans. However, if you’re looking for the best way to avail unsecured loans, platforms like Digido offer a seamless and easy process that allows the majority of Filipinos to finance their needs in a safe and efficient manner.
Learn more:
✦ Startup Business Loans Without Collateral in the Philippines: Personal Loan Options
✦ Getting Loans with a Car as Collateral in the Philippines
✦ The Ins and Outs of Home Equity Loans Philippines
FAQ
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What happens if you fail to repay a loan?If for any unforeseen situations where you default on a secured loan, the lender has the right to seize the collateral to cover any unpaid loan amount remaining. This often involves selling the asset to cover the remaining balance from the borrower’s loan.
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How are secured loans different from unsecured loans?If you are looking for the unsecured loan meaning and secured loan meaning along with their differences, the major difference between collateral loans from unsecured loans is that secured loans require collateral, while unsecured loans do not. This difference influences the approval process, interest rate, and even the loan limits.
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What are the benefits of secured loans?Applying for a collateral loan typically has lower interest rates compared to other types of loans. At the same time, it can offer higher borrowing limits and more flexible approval terms. This makes collateral loans a viable option for our kababayans who are looking for easy and favorable terms.
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Is it possible to repay a secured loan early?The option for an early repayment with collateral loans is available, but will vary and depend on the lender as early repayment may have some fees to compensate for lost interest.
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Why consider Digido for secured loans?Digido provides fast loan applications, flexible repayment options, and clear terms. Their online platform simplifies the loan process, offering borrowers a seamless and convenient experience.
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