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Islamic Personal Financing in Malaysia - FAQ
Whether you're looking to buy new furniture, fund your wedding or honeymoon, or even consolidate debts, a personal financing may be the answer to your short-term cash needs. A personal financing is great for those who need immediate cash, whether it is for a big ticket purchase or to get through short-term financial difficulties.
What Is A Personal Financing?
A personal financing is basically a short-term financing with a shorter repayment period as opposed to a mortgage. Unlike a mortgage, which usually has a repayment period of 20, 30 or even 35 years, the repayment period of a personal financing is only up to ten years.
Unlike home loan, personal financing is usually unsecured, which means that you can borrow money without providing the lender (the bank) any form of security or asset, such as your home or your car. Even though you're not providing any security, you're still obligated to make your regular repayments on time. Missing a payment may attract penalties and fees, and even negatively impact your credit score.
How Does It Work In Malaysia?
Personal financing are typically available from as low as RM1,000 to RM150,000 or more. The financing amount depends on your individual circumstances (e.g. your ability to repay), as well as the terms offered by the lender. If the financing amount sought is higher than offered, a secured financing may be a better option.
When you take up a financing with a bank, a financing agreement will be executed to outline the amount borrowed, the interest rate and the monthly repayment amount. It will also specify in detail your financing repayment terms â€“ your monthly payment along with the term of the financing, in years and months. As a rule of thumb, the longer the repayment term is, the higher the total amount repayable will be.
There are two types of financing â€“ secured and unsecured financing. In Malaysia, personal financing taken by the general public tend to be unsecured.
Using a financing calculator to find the best personal financing
Just like any other financing, personal financing come in various packages with rates and conditions that differ from one lender to another. To get one with the best rate, you should consider comparing all the available packages in the market. This can be easily done using iMoney's online calculator at the top of the page.
To get started, simply indicate your preferred financing amount and financing period in the fields specified; and the online calculator will instantly generate a list of all personal financing packages fitting your requirements, starting with the best rates at the top. To sign up for a personal financing online, click on the Apply Now button. Our online application service is FREE and available to all members of the public.
Secured Vs Unsecured Financing
A secured financing is essentially a financing where borrowers offer their assets, like a car or a home as a form of security or collateral for the financing. As such, the cost of borrowing is usually much lower than that of an unsecured financing. However, borrowers should be wary of their financial capabilities in repaying the financing as they run a risk of getting their security assets repossessed should they fail to pay back the financing.
An unsecured financing on the other hand, is usually a bit more difficult to obtain as borrowers do not need to offer any form of assets as security. Hence, they would need to convince their lenders of their financial strength or credit worthiness. This is to ensure that the borrowers are able to pay back their financing.
With unsecured personal financing, cost of borrowing is higher as the lenders are taking on a higher risk in providing the financing. Although borrowers do not provide any form of assets to their lenders for their financing, lenders could still take the borrower to court in order to sell his or her assets in order to recover any losses if the borrower defaults on the financing.
The interest charged is often the key determinant of a good financing deal. The lower the interest rate, the less you may have to pay on top of the original amount borrowed. In Malaysia, the interest rates are typically quoted on a flat interest rate basis. Flat interest rate is a type of interest rate where interest is charged on the original financing amount, regardless of what has been paid off.
Possible Fees' Penalties
Early Settlement Penalty:
Some banks will charge a penalty if you fully repay the financing early (as they will not be earning the interest they expected). This fee can vary, and can be as much as total interest charged over three months.
Check the terms and conditions throughout your financing agreement for other fees, such as processing fees, stamp duties and other one-time charges (e.g. brokerage fees).
Many lenders have strict eligibility terms, such as age and income requirements. In some cases, you may also have to provide proof of asset ownerships and details of other debt liabilities.
Common personal financing terms
This is an asset that a borrower pledges to the lender in order to secure a financing; and if the financing is not repaid, the borrower risks losing the asset to the lender. In Malaysia, most Islamic Personal Financing do not require collaterals.
Early settlement penalties:
This is a fee a borrower has to pay if he or she decides to repay the full amount of the financing before the end of the agreed repayment period. This fee is usually charged as a percentage of the initial financing amount.
A guarantor is a person who agrees to pay off a financing on a borrower's behalf if the latter defaults on the said financing. In Malaysia, most Islamic personal financing do not require a guarantor.
Late Payment Charges:
A fee charged by the bank if you do not pay your financing instalment on time. This is a fee a borrower is obliged to pay if he or she fails to service a financing instalment on time. Generally, banks charge 1% p.a., but some banks may differ.
This refers to the financing period. If a financing has a tenure of 10 years, it means the borrower can take up to 10 years to fully pay off the financing.
Islamic Vs Conventional Financing
While a conventional personal financing and an Islamic personal financing work via different banking principles, with the latter being Shariah-compliant, the end-results are similar. From a layman's perspective, both types of personal financing are similar in that the borrower is given access to a fixed amount of money, and in return agrees to pay a monthly repayment amount until the borrowed amount plus any interest amounts are repaid in full. Check out our page dedicated to Islamic Personal Financing.