Microfinance

Microfinance

Microfinance Organizations (MFOs) are financial institutions that grant either microcredits or online loans to people. In the Philippines, they must be registered with the Securities and Exchange Commission (SEC) to legally lend money. This is usually disclosed somewhere on the MFO's website in the form of a Registration Number and a Certificate of Authority to Operate. You can use both the number and the certificate to search on the SEC’s website and verify that it is real.

Microcredit or Online Loan?

Microcredits are credits or loans, usually for a small amount of money, granted to an individual or group of individuals to aid them in self-employment endeavors. They are usually granted by banks, government institutions, non-profit organizations, and microfinance organizations.

Online loans are also loans for a small amount of money, but they are usually granted to individuals who may use the money however they see fit. These are typically granted by banks and microfinance organizations. 

Both microcredits and online loans are usually granted to people who don’t have access to traditional loans. Their purpose is to allow people to pay for things they need while ensuring they’ll be able to repay the loan on time and won’t accumulate debt. Because of this, the amounts granted tend to be lower compared to traditional loans. Generally, microcredits may be of larger amounts than online loans, since they are meant to help people with their businesses, but the difference is not that high.

Why Request an Online Loan

Requesting any loan is a useful tool for getting money to finance something that you might not be able to afford any other way. However, all loans are a big responsibility and must be requested after thoughtful consideration. Unpaid loans harm your credit score and can prevent you from accessing other loans in the future. Plus, the debt keeps growing over time and it can become a stressful situation to be in.

Online loans in particular are especially risky because they’re usually easier to obtain. MFOs don’t tend to do deep background checks or request too much paperwork. Because of this, you might get more than one loan and default on the payments for one or more of them. And even if you only request one online loan, interest rates tend to be much higher than traditional loans, so the debt might multiply faster than you expected.

With all of this in mind, requesting an online loan is a good option if you can’t wait to save up enough money, and if you’re certain you’ll be able to repay it in full as soon as possible. For example, if you suddenly get sick and need money for an expensive medicine immediately, and you know that as soon as you get your salary you’ll be able to pay back, then an online loan would be a good option for you. This could also apply if you need to repair something that broke at home or if you’re on a trip and something was a little pricier than you expected and messed up with your budget. 

How to Request an Online Loan

If you’re certain you need an online loan, then the first thing you need to figure out is how much you need. Figure out what is the minimum amount of money that will cover what you need it for, and request that. Most online loans in the Philippines lend up to ₱25,000 or ₱30,000, though some might lend up to ₱50,000. There’s no benefit in requesting the maximum amount available needlessly, so this step is important.

Once you know how much you’ll request,  the next step is to consider what loan terms will benefit you most. The two most important ones are interest rates and fees, and repayment periods. Interest rates and fees determine how much you will pay in the end and repayment periods determine how long you have to pay for it.

The interest rate is usually expressed annually, but sometimes MFOs express it daily. As time passes, the extra amount you have to pay for interest rate increases, so the sooner you can repay, the better. Fees usually are a processing fee, which comes out of the amount you requested, and others like late payment fees. You want to be aware of any fees like the processing fee, because it will affect how much you get. 

For example, if you need ₱20,000 but there’s a ₱2000 processing fee, you’ll receive only ₱18,000. In this case, you might want to request ₱22,000 instead, so you receive the full ₱20,000 you need. Please note that even if you only receive ₱20,000 after the fee, you will still need to pay back ₱22,000 + interest.

Payment periods usually are anywhere between 7 days to 3 months, though some might go for longer. In general, you want to get a period that allows you to repay comfortably. The longest payment period possible isn’t always the best, because interests accumulate over time, as we said before. A good way to figure out a payment period that works for you is how much time there is until your next paycheck, plus a few days of wiggle room just in case.

With these important aspects in mind, choosing an MFO to request from is fairly simple. Find one that offers the amount you need and the repayment period you want, and has the lowest interest rate possible in these conditions. Also, you could take advantage of promos for new clients like 0 interest rate or 0 commissions, if the amount and the period match your needs.

Here at Credilemon, we can help you with this last step. We’ll recommend some of the best MFOs in the Philippines so you can compare all their conditions and choose the one that best suits your needs. We have it all in one place so you don’t have to jump from one place to another to find these credible lenders.