The Malaysians’ Guide To Comparing Personal Loans

The Malaysians’ Guide To Comparing Personal Loans

As you sit on a lumpy sofa in the middle of your living room, listening to the water drips from a leaky roof as the rain taps on your window pane relentlessly, you may be contemplating a makeover for your life. It’s not surprising that most of us find ourselves strapped for cash and feel like we are stuck in a financial rut – unable to move forward.

It’s not impossible to have a financial overhaul when we feel stuck. There are many financial products out there that may be able to give us a boost towards the right direction. If these products are used to our advantage, we may find ourselves improving our finances and our life.

One such products are personal loans. It is one of the easiest credit facility an individual can take up because it requires no collaterals. In fact, you can get a personal loan application in Malaysia approved within 10 minutes.

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However, just because it is easy to get doesn’t mean everyone should get one. It is a credit facility that comes with interest after all.

Personal financing can be used for debt consolidation, or pay off education or training fees, home improvement, car financing, medical expenses and other emergency expenses.

Whether it is a good or bad decision lies in its purpose. Getting a personal loan for a vacation or to buy a new TV is definitely not a great idea. However, getting a personal loan to fund home improvement, which will increase the value of your home, is not a terrible idea.

However, taking up any credit facility must come with serious considerations on all factors. You wouldn’t want to land yourself in financial dire straits when you are unable to pay for your monthly repayment.

Here are the major factors you should look out for when you are shopping for a personal loan in Malaysia:

1. Attractive financing rates

Whenever you are getting a credit facility, the most important factor to look at is the financing rate. Although this is an important factor, it is not the only factor you should consider.

This is why comparing personal loan plans available in the market is crucial when you are looking for a personal loan. A package that allows you lower financing rate according to requirements give you the possibility of getting a cheaper loan.

As a personal loan is approved based on your credit standing, which includes your income and credit report, it is important to ensure your credit report is on tip-top condition.

Here’s how much you could save on finance charges with lower financing rate:

Bank X
Bank Y
Flat financing rate
4.95%
13.75%
Effective financing rate
9.22%
21.00%
Loan amount
RM30,000
RM30,000
Loan tenure
3 years
3 years
Monthly repayment
RM958
RM1,130.25
Total interest over loan tenure
RM4,488
RM10,689

Based on the table above, you save a whopping RM6,201 in finance charges when you opt for a lower financing rate. That’s a lot of money to be saving in three years!

2. Longer loan tenure

How long you can take up the loan for can affect your monthly repayment and your overall cost of lending. The longer your loan is, the lower your monthly repayment will be, but the higher your financing charges will come up to.

For some banks, the financing rate also inches up in tandem with your loan tenure, which means, the higher your tenure, the higher your financing rate is.

Based on Bank Negara Malaysia’s ruling, the maximum loan tenure for personal financing in Malaysia is 10 years. However, many banks offer a maximum loan tenure of only up to five years.

Some of the financial institutions that offer the maximum tenure of up to 10 years are Bank Rakyat, BSN, Bank Islam, Al Rajhi Bank and MBSB. However, for some of these banks, the applicants are required to fulfil certain criteria to be eligible for the maximum loan tenure.

For example, Bank Rakyat has the following requirements for the maximum loan tenure:

Salary
Financing Tenure
Employment Status / Tenure
RM1,000 – RM1,999
(manufacturing sector)
5 years
Serve minimum 3 years & permanent
RM2,000 – RM 3,000
5 years
Permanent
RM3,001 and above
10 years
Permanent

If you are looking to borrow a big amount and you are unable to commit to a big monthly repayment every month, it makes sense to opt for a longer loan tenure. Though the financing charges can be quite high, it’s still better than defaulting on your loan payment, which can have really bad consequences for your finances in the future.

Here’s how much a different in loan tenure can make on your repayment:

 
3-year tenure
10-year tenure
Flat financing rate
4.95%
5.44%
Effective financing rate
9.22%
9.37%
Loan amount
RM30,000
RM30,000
Loan tenure
3 years
3 years
Monthly repayment
RM958
RM386
Total interest over loan tenure
RM4,488
RM16,320

By opting for a lower tenure, you are potentially eligible for a lower financing rate, compared to the maximum 10-year tenure. However, you can see a stark difference in the monthly repayment amount – at RM572 a month! If you are really short on cash every month, it makes sense to opt for a longer tenure so you can manage your monthly repayment effectively.

As you can see there is a huge different in total interest for both tenures. For the 3-year personal loan, you only incur a cost of RM4,488 for the loan, while the 10-year tenure’s cost of lending comes up to a whopping RM16,320!

There are pros and cons of short and low tenure for personal loan. As a rule of thumb, it always make better financial sense to choose the lower tenure, however, only if you are able to commit to the higher monthly repayment.

3. Minimum requirements

Once you have compared the above factors, you would have shortlisted a few personal loan that fit your criteria. The next step is really important to ensure that your application is not rejected by the bank.

You need to fit the bank’s minimum application requirements. The more flexible the requirements the better, as your chances of getting approval are higher.

  • Income & employment

If you fall in the lower income group, you need to be thorough when you are evaluating the personal loan products in the market. Some banks require a minimum income of RM3,000 from its personal loan applicants.

One of the lowest income requirements in the market is RM1,000 for permanent employment, and RM8,000 for contract employment. However, the lower income group do have a higher financing rate compared to others.

For some banks, they even look at your employers in their underwriting process. Bank Rakyat offers a lower financing rate for selected companies/employers. This gives applicants a chance to enjoy a lower financing rate, unlike personal loans with a one-size-fits-all financing rate.

  • Age

There are many personal loans out there that only allow applicants from age 21 and above. This really renders many aspiring personal loan borrowers ineligible.

If you are below 21, the good news is Pembiayaan Peribadi-i Sektor Swasta is open to borrowers from age 18 to 60 years old during the repayment period.

  • Citizenship

Majority of the personal financing products in Malaysia are open only to citizen of Malaysia.

It’s important to ensure you fit all the requirements set out by the bank before making your application to avoid being rejected. Rejected application will be recorded in your credit report which pushes your credit score down. A bad credit report can affect your future credit applications.

 

As with any credit facilities, you must do your homework thoroughly before deciding to apply for one. First of all, you need to review your financial standing and see if you can afford a loan before you shop for a personal loan.

Once you have done that, you need to compare all the personal loan products in the market, and find one that suits your purpose and take up the least cost of lending.

Whether you need to cash for home renovation to increase your property value, or to fund your further education, these factors of choosing a personal loan remain the same. s

If you have considered all the factors, getting a personal loan can turn out to be a good financial decision that can put your finances in order.

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