Thanks to the many loan arrangements now offered by Philippine banks, there are a number of avenues for a regular Filipino to borrow money through a loan. The borrowed amount can be used for a lot of things, including the following: to pay for daily household or business expenses; to ensure that there are enough funds to pay bills in a timely manner; and to loosen up one’s cash flow. 

Bank loans in the Philippines typically fall under two categories: (1) consumer loans for the purchase of consumer goods and services, (2) and commercial loans to help manage business-related operations. The terms, loaned amounts, and rates of interest all differ between loan products, so it is best to research on the different loan types before applying for one of your own. 

To that end, here’s a rundown of the most popular bank loans in the Philippines, what they are meant to achieve, and the typical profile of each loan’s borrowers. From this information, you may be able to decide if taking out a bank loan is a sound financial design for you.

Consumer Loans

Multi-Purpose Personal Loan

A multi-purpose personal loan from a bank involves borrowing money for personal expenses. Such expenses are varied in nature, and thus the funds from the loan can be used quite flexibly for expenses like medicines, groceries, gasoline, clothing, and others. Personal loans can either be the secured type (meaning that the lender will ask for the borrower to put up collateral), or the unsecured type (no collateral is needed, but interest rates are typically higher than those of secured personal loans). As long as they fulfill the bank’s requirements, anyone who needs to borrow cash in the short-term for personal reasons may apply for this kind of loan.   

Home Loan 

A home loan, also known as a mortgage, allows a borrower to purchase real estate (e.g. lot, a condominium unit, a townhouse unit, or a single-detached house), to pay for that property in staggered payments, or to refinance the home they are already living in. The eventual goal of a home loan is to have the borrower pay off, then own, the real estate asset. Best of all, while they are in the process of paying back their debt, they can already live with a roof over their heads. 

Auto Loan 

As the loan product’s name implies, an auto loan enables a borrower to purchase a brand-new car, buy a secondhand car, or refinance a car that’s already in their garage. Many Pinoys dream of being car owners, and having a car of one’s own is considered a huge personal and financial milestone. An auto loan will help a borrower complete this dream for themselves.

Motorcycle Loan 

Motorcycle loans require lower down payments, relatively lower interest rates, and the same doable loan terms as auto loans, which is why this type of loan is popular among road warriors. A motorcycle loan can be used to finance a typical motorbike, a scooter-type vehicle, a TODA-registered tricycle, or even a non-conventional motor vehicle (auto rickshaw type).

Commercial Loans

Line of Credit

In the parlance of commercial loans, a line of credit is a predetermined amount of money that can be flexibly used for everyday business expenses. Business owners favor this kind of loan because it doesn’t require a large sum upfront. Lines of credit can take different forms. For example, they can finance receivables from customers, or they can advance cash on yet-uncleared business checks so that a company can use that cash immediately. 

Equipment Loan 

An equipment loan can spread out the cost of otherwise expensive business equipment, which a company would need to improve its operations. The loan allows businesses to acquire new equipment immediately and to take advantage of their benefits. Thus, an equipment loan easily ushers in a return on investment (ROI). 

Microfinancing 

Lastly, microfinancing is a type of commercial loan offered to small and medium enterprises (SMEs) whose financial circumstances normally make it difficult for them to enter the conventional banking system. Microfinancing lending agreements inspire these businesses to save and manage larger amounts of money, all while enjoying low interest rates and simple loan terms. This loan can do a lot to encourage small business owners, otherwise burdened by poverty, to grow and scale up.

Having learned about seven of the most common banking loan types, hopefully you can discern what type of loan and what lending terms are best for you. Knowing what’s available to you—and choosing the right lender—can help you get the best out of a bank loan in the Philippines!