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HomeMoneyHow COVID-19 Is Redefining Loan Repayments in the Philippines

How COVID-19 Is Redefining Loan Repayments in the Philippines

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The Philippines can handle economic shocks brought about by the COVID-19 pandemic, according to a report by the Institute of International Finance. The country entered the global shock in a relatively strong position before COVID-19. However, Filipinos are wailing over unpaid personal debts as the pandemic crippled their modes of income for almost six months now. Massive loss of jobs and insufficient savings are driving the Pinoys to default on their monthly installments.

Disruptions and challenges

COVID-19 is not your usual disruption. It led Filipinos to rethink the way they manage their money. It triggered mindfulness in the way they spend and much more innovative in the way they earn. Businesses with brick and mortar stores began to explore the potential of online platforms while individuals who lost jobs are scouring ways to earn.

The pandemic’s impact is too sudden that employment and financial circumstances led the government to pass new laws as a cushion for the crisis.

Skipping loan repayments

It is undeniable that a lot of Filipinos were not able to pay their installments on time. On the Facebook marketplace and other digital channels, one can see tons of advertisements for used car sales. Some offer pasalo – a scheme that will allow the owner to resell a vehicle and let the buyer continue the car loan installments. On the other hand, banks have devised debt relief schemes to help borrowers manage their payments without paying interest on interest and finance charges.

Grace period

The Bayanihan 2 law, which was recently signed, provides a 60 days grace period for the repayment of loans, credit card balances, and other debts. Otherwise known as Republic Act 11494, the Bayanihan to Recover as One Act mandates all financing institutions, lending companies, banks, insurance companies, and real estate developers to grant a grace period for the repayment of dues on or before December 31, 2020.

The Bayanihan To Heal As One Act (#1) did not provide the condition that grace periods only be implemented during enhanced community quarantine. As per the new law, banks and lending institutions are mandated to allow the 60-days grace period regardless of the quarantine status. The grace period will also be applicable for payments of utility bills like Meralco. Aside from bill installments, the power distributor will also suspend the disconnection of unpaid accounts until October 31.

Easing the impact

Loan repayments

Although all banks and financial institutions are encouraged to devise their debt relief programs, borrowers are advised to look for means to responsibly settle their debts. Dealing with debt has never been more stressful especially when threats to health hinder us from working more.

As we all plan to recover and successfully emerge from the pandemic, let’s see how well we can manage loan repayments during the crisis.

1. Contacting your lenders

Although the law protects you from piling interests and finances charges, you are responsible for negotiating payment terms that could ease out the situation. Falling behind payments may not be good for you in the long run since you still need to face the truth that you owe them money and you need to pay it back.

Reaching out to the bank can help you explore payment terms and avoid delinquencies. Debt relief programs can be readily available but you must also check how these could impact your credit scores and your current loan balances.

2. Analyze the debt relief

Some schemes may be good for other people but may not work for you. The lenders can offer debt consolidation, loan tenor extension, installment schemes, and settlement.

  • Debt consolidation – Debt consolidation allows you to take out a new loan, usually with low-interest rates, to pay off all your existing debts from other lenders. Multiple debts are combined into one loan account with more favorable payment terms. Most borrowers find this useful especially when existing debts are raking up high interests and finances charges. Some banks may even offer zero-interest for the first few months in an attempt to encourage you from taking out the loan.
  • Loan tenor extension – Some lenders would offer loan extensions that will set aside the unpaid monthly installments and extend your loan instead. For instance, if your loan tenor should end in June 2021 but you didn’t pay from March to September 2020, the tenor will be extended for six months more. The extension will disregard the six months of quarantine which disrupted your installments without any finance charges.
  • Installment for monthly installments – This scheme allows you to consolidate all your unpaid monthly installments to be equally divided and added to your repayment after the delinquency. Say your three months delinquency has a total of Php30,000. It will be divided into six months and will be added to your remaining installments.

3. Exploring options

After understanding how much you owe and tracking all your income and expenses, the next big step is to explore options. Getting financial assistance from the government is one huge aid especially the most agencies are providing emergency and calamity loans. Some lenders offer debt refinancing. You can start comparing personal loans and see which terms work best for you.

There is also more you can do than sit and give in to the pressure. Check for ways to earn money. Discover your other potentials and offer goods and services which require little to no capital at all. Understand that the internet is the newest business platform and everyone can set up their online stores. You’d be surprised at how small earnings can help you manage debts and sustain you and your family’s daily needs.

When the pandemic’s over

This, too, shall pass. And when the pandemic’s over, don’t neglect your existing debts. Continuously assess your finances and see which aspects you’re failing in. Budgeting, earning, spending and setting priorities are all essentials of financial health. Understand that your current financial situation highly depends on discipline and resourcefulness. Debt management is a long journey and distressed liabilities can haunt you forever if you won’t act now.

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