Hello fellow OFWs and Seamen! If you have plans to apply for a loan, you can be better prepared by knowing what these loan terminologies mean. There are also tips in the end of every terminology on what questions you should ask the lending company regarding these.
Agents – Agents are individuals who are not employees of lending companies but may be tied up with one. Agents approach OFWs and Seaman who needs a loan, with promises of a sure approval. This is not true. Moreover, agents ask for commission from the loan for their service, which means that you have to pay them if you get approved. Because of this, it is best to avoid agents and look for lending companies that do not accept agents, as those with agents do charge higher fees and interests.
Checking Account Maintaining Balance – Banks require the customer to maintain a minimum balance in order to open a checking account. Ask the loan officer how much the maintaining balance is and if it will be deducted to your loan amount, as there are lending companies that shoulder this amount for you.
Co-maker – A co-maker or co-borrower is a person that will take the loan with you. The co-maker will sign all the contracts, submit all the documents required of him/her and will be liable for the loan. The co-maker is also usually the one who deposits the money into the account, as the co-maker is the recipient of the remittance or allotment. In the situation that you are unable to repay your loan, it is not only you but also your co-maker who will be charged.
Effective Interest Rate – The effective interest rate is the real rate of borrowing money and is different from the interest rate. The interest rate that the loan officer tells you is lower compared to its effective interest rate. In comparing effective interest rate, you should consider the actual loan amount you get, the fees charged and your monthly amortization. Not getting the full amount of your loan means that the effective interest rate is much higher and they are clearly taking advantage of you.
Grace Period – Grace period is the period in time between your disbursement date and first payment date. A grace period is usually given to allow the OFW or Seaman to adjust to their new life abroad, as they start to figure out their monthly expenses and how long it takes for them to remit money.
Hidden Charges –Hidden charges are charges such as processing fee and insurance that companies do not disclose to you until the last step when you are about to sign the contract. Because of this, on your very first visit, always ask what are the charges of your loan and how much of the loan amount you will actually receive.
Interest Rate – The interest rate is the rate they charge on the principal for borrowing money. Different lending companies have different interest rates and companies usually charge this rate per month.
Loan Amount – Loan amount is simply the amount that you want to borrow. What you should ask the loan officer is if you will be able to get the full amount or will there be deductions.
Loan Term – The term of the loan refers to the number of months from the disbursement date to the maturity date, basically the number of months until you full pay your loan. Some lending companies confuse this with the number of payments, so be sure to confirm this if not explained by the loan officer.
Monthly Amortization – Monthly amortization is the amount that you are required to pay every month until the term is finish. For companies that use Post Dated Checks as mode of payment, monthly amortization is the amount written on the checks.
Pre-termination – Pre-termination is putting an end to your contract with the company even before its maturity date. To pre-terminate a loan with a company, you pay the whole amount of your loan and an early termination fee. You should ask the lending company if they allow pre-termination and what are their rules on this as it is not standard for all companies.