![]() This means that if you borrow P25,000, you’ll have to pay back P30,000. We’ve outlined just how much money you lose with a 20% monthly interest in a previous post. For every P5.00 you borrow, you have to pay back P6.00. In fact, this is how the term 5-6 came to be. Informal lenders can charge as much as 20% per month. We’ve outlined the following dangers of getting an informal loan: Outrageous interest rates The potential comes from private individuals or unregistered companies who lend money for profit. Simply put, there is virtually zero financial risk on the borrower’s end when borrowing money from family, relatives, or friends who do not charge interest (albeit the risk of conflict if the principal or loan amount is left unpaid or only partially paid). Second, we must distinguish between informal lenders who charge or don’t charge an interest. They are not to be confused with registered private lending companies, which operate within the Lending Company Regulation Act of 2007 (Republic Act 9474), which states that a company non-regulated by the law (including banks, savings and loan associations, or pawnshops) may only be a corporation granted authority by the Security and Exchange Commission. An informal lender is a person or an unregistered private lending business that lends money without the permission or regulation of the government. It’s where you avail of these loans that makes all the difference.įirst it helps to define what an informal lender is. To be clear, there is nothing wrong with a quick cash loan or a salary loan per se. But what is wrong with getting a quick cash loan, salary loan, or 5-6 loan from an informal lender? These are people who deem themselves unbankable or unable to avail of financial services from banks or registered financing companies. However, due to lending terms, conditions, and requirements such as a minimum income and financial documents, there are still consumers and small business owners who would rather turn to pautang or 5-6. ![]() Banks have been taking measures to ensure that consumers can count on them for a quick cash loan by cutting down processing times and lowering their interest rates. This is in spite of bank loans growing in double digits this year, with the Bangko Sentral ng Pilipinas (BSP) reporting a 40.6% growth of salary-based consumption loans (P48.17 billion from P34.26 billion). In fact, according to the World Bank’s Global Findex Database for 2014, 10% of Filipinos seek loans from informal lenders compared to the worldwide average of 5%. When faced with a difficult financial need where our livelihoods, lifestyles, or very lives are on the line, a number of us turn to informal lenders for a quick cash loan or salary loan. Know the dangers of getting an informal quick cash loan or other unregulated types of loan, before you dig yourself too deep.
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