Looking to apply for a personal loan in Malaysia? Most of us are familiar with the term personal loan, especially personal loan packages from banks in Malaysia. However, you might be surprised if we told you there are a lot of people out there who are still in the dark about personal financing.
These are the people who are afraid to ask about the personal loan but are in dire need of the loan. So, in this article and as an introduction to this website (Personal Loan in Malaysia), we will explain everything you need to know about personal financing in this personal loan in Malaysia guide.
What is A Personal Loan
Basically, a personal loan is a debt. It is the money you can borrow from banks or financial institution, with an agreed interest rate by both parties. As with other debts, you will have to pay back the loan according to the loan agreement.
The payment rate varies according to the loan amount and interest or profit rate. Usually, the more you borrow, the more you have to pay. Some personal loan has a fixed interest rate, and some offer a variable interest rate.
Types of Personal Loan In Malaysia
There are two main types of personal loan in Malaysia, which can be categorized into secured personal loans, and an unsecured personal loans. There are several factors that differentiate between a secured loan, and an unsecured loan. Lets us get more in-depth about these loan categories.
Secured Personal Loans
A secured personal loan is a loan that come with guarantor or collateral. The guarantor and collateral can be in any form — usually car or properties. In other word, applicant have to provide a guarantor or a collateral to apply for a secured personal loan.
In the case the borrower fail to pay back the loan, the bank or the financial institution have the right shift the responsibility of payment to the guarantor, or seize the collateral. If the borrower still can’t offer a settlement after, banks can repossess the collateral or the asset.
Unsecured Personal Loans
An unsecured personal loan differs from a secured personal loan. When applying for this type of loan, the applicant does not have to provide a guarantor or any collateral. Usually, applicant just have to provide proof of employment and citizenship.
Many people get confused when noticing the term “unsecured” on their loan application. They think that the loan is not secure, and is not safe to apply.
The truth is, the term unsecured here applied for the bank or the financial institution. Meaning, the bank or the institution have to bear the risk by giving you the loan.
But that does not mean the borrower can get away by not paying the loan. The lender, banks or financial institution can still take the borrower to court in order to recover any losses from the loan. In many cases, the bank can still seize the borrower assets to pay for the loan.
Secured vs Unsecured Personal Loan — Which One?
Beside the basic difference between secured and unsecured personal loan, there are other factors to consider when choosing between both.
Before applying for any loan, take a hard look at your financial standing first. If you are in need of a quick cash and you are sure you can pay back the loan in a couple of years — an unsecured personal loan is your best bet.
However, if you need a large amount of loan for whatever reason, you can choose to apply for a secured personal loan. A secured personal loan usually offer higher amount of financing with longer financing tenure.
Islamic vs. Conventional
Besides secured and unsecured personal loan, there are also personal loan categories which are known as Islamic personal loan, and conventional personal loan.
Islamic personal loan in is one of the sought after personal financing in Malaysia. This is due to the reason an Islamic personal loan offer a fixed profit rates, albeit in some cases the profit rate can go a tad higher than the interest rate for conventional personal loan.
Don’t get confused between a profit rate in an Islamic loan and interest rate for conventional loan. It is basically the same — with different word.
In Islam, you are forbidden to charge any interest in loans. So Islamic loan work on a profit rate basis. A profit rate is more like a business earning. The loan is treated as an asset, and sell to the borrower. In the case of an Islamic loan, the asset is the cash. Bank sells the cash to the borrower and make a profit of it. This mean there isn’t any interest associated with the loan.
There is a huge misconception in Malaysia that an Islamic personal loan is only applicable to Muslims. This is not true. Anyone can apply for an Islamic personal loan if they meet the requirements.
For your information, religion have never been, and will never be a requirement when applying for loan.
Choosing a Personal Loan Plan — What to Look For?
When shopping for a personal loan in Malaysia, there are several factors you have to consider. Take note that not all personal financing in Malaysia are created equal. Beside interest or profit rate, there are a lot of differences between packages offered by bank or financial institution in our country.
Personal Loan Financing Amount
Personal loan amount or personal financing amount is the amount of money or cash you can borrow from the financial institution.
Financing amount for personal loan in Malaysia vary according to loan type, and the financial institution. Some bank can offer up to RM300,000 for a personal loan plan, while other choose to offer below RM150,00.
For example, MBSB Bank Berhad offer a maximum amount of RM300,000 with their MBSB Private Sector PF-i financing plan, while CIMB Xpress Cash only offer RM50,000 as maximum amount.
However, even if the bank or financial institution offer RM300,000 as maximum financing amount, that does not mean you can apply and be approved for the amount. There are other factors in play when talking about loan approval.
Personal Financing Tenure
Personal financing tenure is the loan period. For example if personal financing tenure for the loan is stated as 1 year to 7 years, you can choose between those period to fully settle the loan.
The financing tenure for personal loan also vary according to the financial institution. Some bank may offer a financing tenure up from 1 year and up to 10 years, while most bank opt to offer a maximum tenure of only 7 years.
CIMB Islamic Bank for example only offer a maximum payment period of 5 years through their CIMB Xpress Cash Personal Financing-i.
Even if the bank offer a maximum tenure of 10 years, that does not mean you can choose 10 years as the financing period. Most bank will adjust the financing tenure according to the loan amount to minimize their risks.
Personal Loan Interest Rate/Profit Rate
Just like financing amount and financing tenure, personal loan interest rate or profit rate (in case of Islamic loan) vary from personal financing plans offered by financial institution.
Nowadays most bank offer more than one type of personal financing. This include conventional personal loan, Islamic personal loan, and even special personal loan targeted at government servant or private sector.
As you have notice by now, the interest rate or profit rate between conventional personal loan and Islamic loan are different. Conventional loan have variable interest rate, while most Islamic loan offer fixed profit rate.
Look carefully at the interest rate or profit rate before applying. The easiest way calculate interest rate or profit rate is by studying the repayment table.
Almost every bank or financial institution will provide with a repayment schedule — how much you have to pay every month according to your financing amount and financing tenure. Choose the best interest rate or profit rate according to your ability to pay back the loan.
Other Factor to Consider
Beside personal loan amount, tenure or interest rate, there are other factors you have to consider during personal loan application.
Take your sweet time to read the terms and agreement before signing anything. Most people who are in a hurry will just skip reading the terms and agreement. This is unfortunate since this is one the most important part before agreeing for a personal financing plan in Malaysia.
The same can be said for other charges and fees. Some banks will charge you a processing fee if your loan application is approved. Some banks will not. For example, AEON Credit will charge a processing fee of 4% from the approval amount for financing below RM10,000. Meanwhile, Alliance Bank does not impose any charge with both of their personal financing plan.
There are also early settlement fee and late payment charges. Early settlement penalties is a fee you have to pay if you decide to pay the full amount of the loan before the repayment period. And, late payment charges is the penalty you have to pay if you do not pay your loan installment on time.
Both of these charges is usually charged as a percentage of the initial loan amount. Most bank will charge 1% p.a for these charges.
How to Apply For Personal Loan in Malaysia
There are several ways to apply for personal loan in Malaysia. Your best bet is applying personal financing through banks. If you choose to apply for bank personal loan, you can apply directly through the bank. Some banks provide online application form. AEON Credit is one of them.
However, most bank require you to apply at any of their branches, or kiosk. CIMB Bank have several personal financing kiosk in Tesco branches throughout Malaysia.
Be aware that Banks do not assign agents for personal loan application. Nowadays there are 3rd party who claim that they can help you to apply for bank personal financing. Most of them are scammer. They will charge you for a deposit or upfront payment for their service.
If you choose to apply for personal financing from licensed money lender instead of banks, you can apply at the money lenders office. Some licensed money lender provide online application through their website.
Be advised though, nowadays many loan sharks disguised themselves as licensed money lender. So, investigate thoroughly before approaching any licensed money lender in Malaysia.