The Filipino Guide to Loaning Money


Let’s admit it, sometimes you come up short on your budget. It is something that you cannot avoid especially if you have tons of responsibilities to attend to. In the Philippines, loans are a common option whenever people encounter money problems. Most Filipinos use various means of borrowing money like asking for help from family members, friends, a moneylender, a bank, or even a “Bombay”.

Loans Philippines
Loans Philippines

Loans Philippines

The proprietors of loans in the Philippines are mostly business owners, breadwinners, etc. It is difficult to live paycheck after paycheck especially those who work at a minimum wage. That is why loans are commonplace in the country. This is a brief guide on the lending culture in the Philippines, read more below!

5-6 Lending System

The 5-6 system was brought by Indian nationals in the country in the 70’s and it has since then been a prominent way to loan money. It is not explicitly advertised with the Indian lending business spread about by word-of-mouth in the neighborhoods. Since borrowing money is part of the Filipino’s culture, this system was greatly accepted despite its large interest rate of 20%.

The 5-6 lending system became so popular because the repayment of the loan is done on a daily basis with the collector swinging by the house of the borrower unwaveringly. The cash to be paid seems smaller than it really is with this scheme. This is because, for most Filipinos, it is easier to part with a smaller bill rather than a larger sum in a onetime payment. The simple Filipino prefers this at times because they do not even have to get hassled with submitting required documents unlike applying for a loan in banks.

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Fix-Rate Loan Definition

The fix-rate loan definition is usually established when there is a verbal agreement between the lender and the borrower. This usually happens among neighbors or relatives who practice this system because they have a sense of trust and connection between the agreeing parties. There is no standard interest rate in this money-lending scheme, but they talk about the fixed amount of money to top up as repayment to be paid after a period of time. If you are a consistent borrower with a high record of payment, you may even be rewarded by having no interest on top of your stand at all.

Incremental Borrowing Rate

This loan type happens when the interest rate increases after a certain period of time. The incremental borrowing rate system forces the borrowers to pay as soon as possible or they will have to pay more. While this encourages payment discipline among borrowers, the lenders rake in more profit than the basic principal loan which proves to be the risk for the borrower. Interest rates in the Incremental Borrowing Rate system can start in as small as 3% but if you fail to pay within a month or within the date that has been agreed upon, the interest rate will increase to 4% on the next month.

Diminishing Interest

The diminishing interest loaning system is also one of the primary methods that Filipinos prefer. This scheme works like this: the borrower will pay monthly installments and the amount of interest will seem to decrease as it will be based on the current outstanding balance of the capital.

Recurring interest

The recurring interest is a system wherein the lender will keep on collecting the interest as long as the lender had not paid the debt in full payment and not by installment. This is the lending system used by most pawnshops in the Philippines.


“Paluwagan” or pool funding is just as popular as 5-6. Pool funding is commonly done within a neighborhood, a close circle of friends, or workmates. This works when a group of people will collect a certain amount from each other then they will do a ‘casting lots’ or “builtin” to know which one will be the first to use the pooled fund.

Then it will progress on the next day or week, they will once again create a pooled fund with the same amount and the next person will be decided by the casting lots once again just like at the beginning of the system, then this person will take home the money. The system will go on until the last person will be able to have his or her chance to take home the same a month of the collected pooled fund.

Online Lenders

Expect a short and smooth transaction with online private lenders which maximize technology for the latest scheme of digital lending. Online lenders are private lenders willing to give short-term loans at the shortest process that borrowers can ever experience.