Need a small loan for your business? P3 might be the business loan for you! Launched by DTI, P3 presents a viable alternative compared to loan sharks / 5-6. Lower rates, fast processing, borrow up to 100K.
If you have a credit card or an existing loan with a bank, you probably got a text message similar to below. Bank branches are also decorated with announcements with regards to data submission.
Not all loan providers offer this option. But from time to time I encounter this option especially for mortgage / home loans. If Juan is presented such an option and s/he can afford the amortization using diminishing balance, s/he should go for it to save some more on interest payments.
Juan doesn’t pay much attention to the cost of borrowing. He cares more on the monthly amortization (short-term thinking) rather than the total costs involved (longer-term thinking) And that costs Juan much. Ouch.
In funding major expenses such as a home improvement or getting car, tendency is to take out a loan rather than deplete Juan’s savings. No monetary return (i.e. actual cash inflow) is expected from a much improved home or new car (except for appreciation in property value and net worth) but Juan is still willing to get a loan as long as he can pay for the amortizations. What more a business wherein there is a chance, no matter how small, of a monetary return.
BSP is planning to lower and tighten the LTV cap to 60%, which means future borrowers will have to shell out higher DP at 40%. This effectively makes the target market for home loans smaller since not everyone can easily afford a 40% DP.
Not all businesses can operate with good cash flow at all times. In fact every business would experience some problems with their cash flow at some point in time. Although it can get quite challenging, cash flow problems are part and parcel of every business. Business owners just need to make sure that they find solutions to bring in cash to continue the operations.
Both options above are illiquid and very long term commitments. Meaning if you change your mind, or have a need for cash beyond your emergency funds, it will be more difficult to sell these items to have cash.
Fully or partially pre-term your loans. I know this sounds so killjoy but hey, delay of gratification is always gratifying. And think about this. Imagine the interest savings you can get by pre-terminating your loans. Or the freed up money that used to be spent on amortizations.
It’s not just a matter of low amortizations that you cannot feel. You should also look at how much you will pay for the entirety. So the shorter, but still within your cash flow, the better.