There may be times when you need to borrow money, whether to cover an emergency expense or manage a temporary cash flow gap. When used wisely, a loan can be a helpful financial tool to handle urgent financial needs. However, it’s important to choose the right lender and ensure that the loan terms fit your financial situation.
In the past, borrowers in the Philippines primarily relied on traditional banks or independent lenders for secure loan options. But thanks to the rise of digital banking, borrowers now have another option that is both safe and convenient. A digital bank operates entirely online, offering banking services—including loans—without physical branches. As such, these banks provide a more accessible borrowing experience, allowing users to apply for loans, get approvals, and receive funds through mobile apps.
While both digital and traditional banks have their advantages, there are specific situations where borrowing from a digital bank is the more practical choice. This article explores these scenarios and why digital banks can be the better option in certain instances.
1. When You Need the Loan Fast
There are situations where waiting days or weeks for a loan approval isn’t an option. Whether it’s an unexpected medical expense or an urgent car repair, getting funds quickly under these circumstances is essential. In this case, it may be more practical to apply for loan options offered by a digital bank.
Traditional banks typically require a longer processing time due to their strict verification procedures and the need for manual approval. Borrowers may have to wait for credit evaluations and visit the bank multiple times before receiving the funds. In contrast, digital banks streamline the loan process by offering faster approvals and disbursements. Many digital banks like Maya can do this because they use automated credit assessments, allowing them to process loan applications within hours instead of days.
2. When You Only Need a Small Loan Amount
If you only need to borrow a small amount, digital banks provide more accessible options compared to traditional banks. Most major banks in the Philippines have minimum loan amounts that start at ₱20,000 to ₱50,000, making them impractical for borrowers who only need a few thousand pesos.
On the other hand, digital banks cater to smaller loan needs by offering microloans or short-term personal loans. Some digital banks allow borrowers to take out even lower credit lines, like with Maya Easy Credit, where you can just borrow the exact amount you need. This makes them ideal for smaller financial needs such as paying household bills, purchasing groceries, or covering short-term personal expenses.
3. When You Lack Supporting Financial Documents
Traditional banks often require borrowers to submit a long list of documents, including income tax returns, bank statements, and employment certificates. This can be a challenge for freelancers and those working in the informal sector, as they may not have consistent income records or the necessary paperwork.
Thankfully, digital banks offer a more inclusive approach to lending by requiring fewer documents. In many cases, borrowers only need to provide a valid government ID and a mobile number to apply. Some digital banks also assess creditworthiness based on alternative data, such as mobile transactions, e-wallet usage, or online payment history. This makes it easier for individuals who may not qualify for a loan with a traditional bank to access financial assistance.
4. When You Have No Access to a Physical Bank
Another situation when it’s more practical to borrow money from digital banks is when you don’t have access to a physical bank at the time you need the funds. Due to the strict hours kept by traditional banks, you may not have immediate access to some of their services.
With digital banks, borrowers don’t need to visit a physical branch to apply for a loan. The entire process can be completed using a smartphone app. Additionally, digital bank applications are available 24/7, allowing borrowers to apply at any time, even outside business hours. This is particularly beneficial for people who need funds beyond the usual banking hours.
5. When You Want a More Flexible and Convenient Process
Applying for a loan from a traditional bank often involves multiple steps, strict requirements, and rigid approval processes. Borrowers need to gather multiple documents and wait days or weeks for approval. Even after approval, some banks require borrowers to visit the branch again to sign contracts or submit additional paperwork.
With digital banks, the entire borrowing experience is simplified through a fully online and hassle-free process. Many digital banks have user-friendly mobile apps where borrowers can track their application status and make payments without having to visit a branch. Moreover, you don’t need to worry about providing collateral when borrowing from digital banks because they mostly offer unsecured loans. If you prefer a quick and convenient loan experience, digital banks offer the flexibility that traditional banks lack.
6. When You Are Looking for Competitive Interest Rates and Fees
If you’re looking for a cost-effective loan option, digital banks often provide better rates and fewer fees than traditional banks. Generally, traditional banks have higher operational costs and these expenses often lead to higher loan interest rates and additional fees.
In contrast, digital banks operate entirely online, allowing them to reduce overhead costs and offer more competitive loan terms. Some digital banks even offer promotional interest rates or zero processing fees for first-time borrowers, which makes them a more attractive loan option.
While traditional banks remain a reliable option for long-term and high-value loans, digital banks can be a more practical alternative in many situations. Whether you opt to borrow money from a traditional or digital bank, it’s always important to compare different financial institutions and review the complete loan terms. Remember, when you choose the right loan provider and borrow responsibly, you can manage your finances effectively without unnecessary stress.
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