Credit Score

Personal Loans 101: Credit Scores and Interest

A personal loan can be a big step towards achieving your personal or professional goals. However, before you take that opportunity it’s crucial to understand the basics of personal loans, and the financial mechanisms that will affect how much you pay and lend. Below we’ll outline the two most important factors you should examine before applying for a Citi Personal Loan

  1. Credit Score

    A credit score is a number that indicates to lenders how likely a debtor will be able to repay what they owe. This score is based on existing debts, repayment history, and other factors. If you aren’t aware of your credit score, do some research on how to find yours as these reports are generally not easily accessible for the public. If you’re curious about learning more about credit history, please read our previous article here. Furthermore, you should take into consideration what effect taking a personal loan will have on your credit score in the future. On one hand, if you are confident that you’ll be able to pay off your loan on time, you’ll improve your credit score. On the other hand, delinquent payments will negatively affect your credit score and make future loans a difficult proposition for you.

  2. Interest Rates

    An often-overlooked aspect of lending is the interest rate that comes along with your loan. Furthermore, your credit score will affect the interest rate the bank offers you, so don’t forget to look into our first point above! For example, if you were to take a ₱500,000 loan, you are going to be responsible to repay more than the principal amount. Let’s have a look below at how seemingly small differences in interest rates would affect your monthly payments, and how much interest you would pay over the duration of your loan.

    For this theoretical scenario, your ₱500,000 loan would be paid over 5 years.

    Interest Rate Monthly Payment Total Interest Paid
    15% 11,894 213,660
    20% 13,246 294,780
    25% 14,675 380,520

    As you can see, only a 5% incremental difference in your loan interest rate can have serious implications on your wallet, so be aware of your credit score and what implications it will have on your loans and your ability to pay them.

    If you’d like to learn more about Citi Personal Loan, please visit our loan page here

This product is sold by Union Bank of the Philippines, using certain trademarks temporarily under license from Citigroup Inc. and related group entities.

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