Chapter 2

Introduction

- Installment loans allow consumers to generate funds by borrowing money and paying it back in an
equal payment every month with a fixed interest rate.

- Taylor (2023) notes that this can be a handy personal finance tool for an individual who seeks to pay
debts in small and manageable amounts.

-According to Credit Information (2019), as of December 2019, installment transactions were sixty-five
percent (65%) of the contract data of 56,481,088 coming from the country’s public credit registry.

Type of Installment Credits

-Credit Information Corporation (2019) reveals that installment credits dominate among Filipino
borrowers and the transactions involve not just microfinance institution loans but also covers vehicle and
housing loans.

Interest Rate

-According to one of the financial institutions in the Philippines, Metrobank, there are two types of
interest rates, and these two are called variable and fixed interest rates. It is called fixed because the
interest rate will remain unchanged until the term ends and doesn’t get affected whenever the market
rate goes down or up.

- However, the ceilings for interest rates, as well as the fees for specific loans are prescribed by the BSP
to be offered by the lending companies, financial companies, and their mobile loan applications.

Impact on Income Allocation

- Whiteside (2023) explains how this rule works; where 50% of the individual’s income will be spent for
their needs, 30% will go on satisfying what they want, and 20% is kept for savings, as well as debt
repayment.

Impact on Spending Habits

-Padios (2018) suggests in his book that young Filipino call center workers are making use of their
purchasing power in finding satisfaction for their selves by eating new foods, buying aesthetic goods, and
finding other new ways to escape from the psychological grips of emotional and what is considered as
affective labor.

-In fact, Sala and Trivin (2022) agree with this – stating that the level of debt has a negative impact on
consumption. They observed that households are adjusting faster their consumption to debt for non-
related to real estate assets.

Impact on Protection/ Insurance Preference

- Zoleta (2022) stated that in the Philippines, there is no specialized or specified system for credit
reporting which is contrary to other countries like Canada or the United States. However, in the
Philippines, there is credit scoring and it is assigned to the Credit Information Corporation. There are five
criteria for calculating credit scores which include credit payment history, credit utilization ratio or the
amount owed, types of credit used, length of credit history, and new credit.

Synthesis

- As stated by Taylor (2023), installment credits can be useful in personal financial strategy for someone
who wants to pay significant debts through tiny, and doable installments. In the Philippines, Filipino
borrowers usually use installment credits. Credit Information Corporation (2019) reports that, as of
December 2019, 65% of the 56,481,088 contracts in the public credit registry of the country were
installment transactions.

- According to Whiteside (2023), 50% of the individual’s income should be spent on necessities, 30% on
their wants, and 20% on their savings and debt to be paid.