So how does a potential pause on the central bank’s rate hikes affect you, as a consumer? Rising interest rates make borrowing money more expensive. This has a direct impact on things like your credit card bills, new loans, and mortgages. So should the BSP decide on pausing policy rates on June 22, this means that you don’t have to worry about rising interest rates if you’re planning to borrow money for a new car, home, or even to expand your business.
While this may be encouraging, there are still many factors to consider before taking up a loan for a big purchase. Before you start heading to a bank, here are some things to keep in mind, whether as a first-timer or as a repeat borrower:
Review your current financial health.
You need to look at your financial health first. Do you have existing debts, which you need to prioritize and pay off soon? Can your emergency fund cover unexpected expenses? Can you use your savings or extra cash to pay for a big purchase?
Make sure your loan’s purpose is clear.
Loans should help improve the quality of your life or generate economic value for you, such as learning new skills which can help you get promoted in your job. In the case of thinking of purchasing a new condo— think of its actual benefits: will it be better for you and your wallet to buy a condo vs. to just rent? Remember, banks will also evaluate your application and the interest rate they will give you based on your loan purpose.
Determine your capacity to pay a loan back.
Is your current income enough to pay for the money you will borrow? Do you have other assets that you can submit as collateral? After you have checked your sources of income and your monthly budget, see if you have enough to take in a loan. If you are diligently budgeting, adjust it to fulfill your loan payments.
Lending institutions, especially banks, use the debt burden ratio (DBR) to compute the loan amount you can repay, including the amount you can borrow. This is shown as a ratio of the needed loan payments to your monthly income. Lenders often use this to gauge if you are a capable borrower who can qualify for a loan.
The debt burden ratio or DBR is your total monthly loan payments divided by your monthly income. It is expressed in percentage. The higher the DBR, the less your financial capacity to pay for additional loans. So a higher DBR will likely mean that your bank will give you a lower loan amount or might not approve your application at all.
Personal finance experts vary in their recommendations on the acceptable total monthly loan payments. As a guideline, your total loan payments should be in the 30%-35% range of your monthly income. If you can keep your total monthly repayments at that range, this will give you enough elbow room to pay for your essential expenses, while also having some savings or even investments.
If you’re planning to take up a home or a car loan, you might want to consider Metrobank’s new offers with their ‘Your Dream is on Us’ promo – which runs until June 30, 2023.
Metrobank offers a low interest rate of 9.11% p.a. for a 5-year car loan on a one-month advance payment scheme. The bank also waives up to PHP 50,000 off your bank fees, so you’ll have extra funds to drive to your next adventure. On top of this, you will be pre-qualified for a Metrobank Toyota Mastercard, which offers a 3% fuel rebate at participating Petron stations, 10% discount on genuine parts and accessories, labor at Toyota dealers, and more.
Metrobank also offers a low interest rate of 6.50% p.a. fixed for one year on Home loans plus up to PHP 50,000 waived fees. As an additional perk, you will be eligible to get a Metrobank Credit Card so you can enjoy deals and discounts when you furnish your new home.
Applying for a Car or Home Loan is easy. Just head to any Metrobank branch near you or apply via the Metrobank website (https://www.metrobank.com.ph/upgrade/home-loan or https://www.metrobank.com.ph/upgrade/car-loan).