BDO Money Matters | By Mark B. Aragona for Yahoo! Southeast Asia -Wed, 28 Nov 2012
What does life look like when you’re borrowing money? It takes major adjustments to get what you want, but it’s often worth the risk. Below are stories of how some people made loans work for them, and not the other way around.
Kristine, 34, is a newly-married teacher. Like most couples, she and her husband dreamed of owning a house. They picked out a condo unit under pre-selling, but as they were just starting out in life and couldn’t afford the usual 20% down payment, they looked for some possible solutions.
One choice, which they rejected due to their high interest rates, was to let the developer’s in-house financial company fund their down payment. Their broker showed them a second option: apply for a bank housing loan for the down payment, then follow it with another 10-year loan to cover the rest of the amortization.
Kristine and her husband agreed, gathering needed documents like the deed of sale from the broker, their cedula, proof of employment, and IDs. Because they were already long time clients of the bank, they didn’t have to submit other kinds of documents like passports. After three weeks of processing, their application was approved with an interest of 10% per annum.
Now, Kristine and her husband are paying off the 20% down payment, which will last for the next 13-15 months, then they’ll work on the other 80% over the next 10 years. “In the beginning, it was scary,” says Kristine. “I felt like I was selling my soul, because I’ve never had a loan this big before. But everything worked out fine in the end and we’re able to pay our monthly dues. It’s still quite a commitment, though, and we agreed not to have kids till we’re done with the down payment.”
Paul, a 33-year old physical trainer, obtained a car loan out of his necessity: his old car finally broke down after many years of service. He put up a 25% down payment on his own but needed the loan for the rest of the amount. After submitting his proof of income, bank statements, proof of residence, and his pay slips, his application was approved within three weeks: he received a four-year loan at 20% interest per annum.
“It was convenient,” he said. “There was no trouble at all once I finished submitting my files. Of course, it would’ve been really nice to have bought the car with plain cash and avoided the interest payments, but it just wasn’t possible. For me, this was the second-best alternative.”
Finally, Mark, a 27-year old IT specialist, wanted to start a small food business but needed some seed capital. As it turned out, a bank was offering personal loans to the employees of his company at 15% per annum. He snapped up the chance and took on a 1-year loan of Php100,000, the monthly payment of which would be automatically debited from his paycheck.
After eight months, Mark found his business was taking off and needed more time and attention. He decided to quit his job. However, he found that doing so would mean that the balance on his loan would be due and demandable. Because the loan would completely eat up his separation pay, he decided to try and negotiate.
Mark met with the loan officer and offered to continue paying the remaining five months using checks. At first, the loan officer refused, so Mark then took it up with the manager, and even all the way to a vice-president. In the end, the bank agreed, and Mark finished the loan as scheduled without any additional burden on himself.
“My take-away is that as long as it’s within reason, the terms of loan are negotiable. You just have to keep trying and look for someone who would listen to you.”