There are secured loan and unsecured loan in Malaysia. What are the differences between these two, and which one should you choose? This article will shed some light on and help differentiate the difference between secured vs unsecured personal loan in Malaysia.
In the previous article, we have explained in depth the ins and outs of personal loan in Malaysia. Some of the topic involved include secured and unsecured personal financing. If you haven’t read the article, we advise you to the read that article first before continuing.
Secured Loan and Unsecured Loan
Secured loan and unsecured loan is the two main categories of financing, be it personal, auto or even housing loan. Every loans or financing fall into these two categories.
Before we get to the differences between these two loan types, it is important that you understand the main factor or condition that separate these two.
What is a Secured Loan?
Basically speaking, secured loans are the type of loan that is protected by collateral if the form of assets, or anything similar. The car loan and housing loan automatically fall into this category.
That is why when you purchase a car or a house with bank financing, the bank will keep the deed or the title until you fully paid the loan. The car or the house is the collateral or asset.
If you fail to settle your debt, the bank has the right to sell or auction your assets, as a mean to recover from their loss.
Example of a secured loan
As stated earlier, auto loan and housing loan is a secured loan. You mortgage the car or the house to the financial institution. Other secured loan example includes home equity loan or line of credit.
What is an Unsecured Loan?
An unsecured loan is the opposite of a secured loan. You don’t have to provide any guarantor or collateral when applying for an unsecured loan.
Meaning if in the event you failed to pay for the loan, the financial institution, e.g. Bank cannot confiscate your property or asset. The bank takes the risk, not you.
However, in certain cases, the bank can take the borrower to court and request the sale of the borrower’s assets to cover for the loan.
Example of an unsecured loan
Some example of an unsecured loan is credit cards, personal loan or personal lines of credit, and student loans.
The Differences Between Secured Loan and Unsecured Loan
Besides collateral and assets, there are other differences between a secured loan and an unsecured loan.
Interest Rate or Annual Percentage Rate
The interest rate for secured loan tends to be lower than an unsecured loan. Since the bank takes the risk for the financing, interest rate for the unsecured loan is higher than a secured loan.
The secured loan has higher financing amount compared to an unsecured loan. For example, auto loan and home loan have higher financing amount than a personal loan or credit cards.
The secured loan has higher tenure compared to an unsecured loan. A housing loan can go up to 30 years. Meanwhile, the maximum financing tenure for a personal loan in Malaysia is 10 years.
Since the bank bear the risk for an unsecured loan, the requirement to apply for unsecured loan tends to be stricter compared to an unsecured loan. The bank will investigate and check your credit records and your financial resources.
Secured Personal Loan and Unsecured Personal Loan in Malaysia
Is there such thing as a secured personal loan, especially in Malaysia? Doesn’t personal loan or personal financing fall under an unsecured loan?
Secured Personal Loan in Malaysia
In general, personal loans in Malaysia are unsecured loans. You don’t have to provide collateral or guarantor when applying for personal loans, be it with a bank or other financial institution such as licensed money lender.
So how can a secured personal loan exist?
The answer is yes, there exists secured personal loan in Malaysia. These kinds of the personal loan require you to provide a guarantor or a collateral. However, the guarantor or collateral is not the form of assets – literally speaking.
Example of Secured Personal Loan in Malaysia
Some example of secured personal loans in Malaysia are:
- BSN Sandaran Sijil Simpanan Tetap.
- Bank Islam Personal Cash Line-i.
- Agrobank Hartani-i.
- CIMB Credit Line Secured Overdraft.
- AmBank Term Loan ASB/ASB2.
The terms and collateral for these loans are different from one another. For example, BSN Sandaran Sijil Simpanan Tetap requires you have BSN Term Deposit. Meanwhile, Bank Islam Personal Cash Line-i is based on funds available in your Fixed Deposit.
Secured Personal Loans for Government Employee and GLC Personal
Besides secured personal loans mentioned above, there also exists secured personal loans for government employees or GLC personal in Malaysia.
This kind of secured loan uses your job as a civil servant as guarantor or collateral. Most of these loans provide longer financing tenure and higher financing amount compared to unsecured personal loans.
Some of the secured personal loans for government worker or GLC personal are:
- Kuwait Finance House Murabahah Personal Financing-i
- Ukhwah Cash-i
- KOBETA Cash-i
- RHB Personal Financing-I Civil Sector
- Bank Islam Flat Rate Personal Financing-i
- Bank Islam Floating Rate Personal Financing-i
- Bank Rakyat Personal Financing-I Private
- Bank Rakyat Personal Financing-I Public
- BSN Aflah Prima Personal Financing-i
- BSN Executive-1
Some of these loans require automatic salary deduction via Biro Angkasa.
Unsecured Personal Loans in Malaysia
For those working in the private sector, or self-employed – the unsecured personal loan is another option. Most of the personal loans or personal financing plan offered in Malaysia is an unsecured personal loan.
You don’t have to provide any guarantor or collateral when applying for an unsecured personal loan. However, most unsecured personal loan in Malaysia require you to be free of any blacklist (CTOS), have a good credit record (CCRIS) and have been in employment for more than 6 months.
If you are self-employed or is running a business – you are required to have a company registration with SSM (Suruhanjaya Syarikat Malaysia) and have an active current account with the local bank.
Although the terms for unsecured personal loans in Malaysia is a bit stricter than secured personal loans, the application process is simpler. You also don’t require many documents to apply for an unsecured personal loan in Malaysia.
Secured or Unsecured Personal Loan?
Choosing between secured and unsecured personal loan is quite confusing sometimes. You have to know your requirements and the reason for your financing.
Here are some considerations for choosing between secured and unsecured personal loan.
- If you are buying a new car
This is a no-brainer. Vehicle or auto financing in the form of secured auto loan is the way to go. Applying for a personal loan (secured or unsecured) to buy a new car is not a good choice. The auto loan has a lower interest rate and longer financing tenure.
- If you are buying a house
House loan or home financing is the correct choice. Nobody in their right mind would apply for a personal loan to finance their mortgage.
- If you are buying a used car
This is a tricky Some bank will accept financing for a used car, and some will not. If you can apply for a car loan to finance the used car, go for it. However, if you can’t, personal financing is the only choice.
- You are looking a quick cash with a smaller amount
The unsecured personal loan is suitable for this. Most unsecured personal loan offers minimum financing amount, starting from RM1,000. So if you want to borrow a small amount of money, choose an unsecured personal loan.
- You want to borrow a huge amount of money
If you want to borrow a huge amount of money, you will have to opt for a secured personal loan. A secured personal loan offer higher financing amount with longer financing tenure.
Whether you choose secured personal loan or unsecured personal loan, make sure you do some homework before applying for the loan. Compare the loan plans from the several banks and choose the one that you are most comfortable with.
Take into consideration the interest or profit rate, the monthly repayments, other fees and charges, and the loan type. Be smart when managing your finance.