If you are looking for a low interest rate personal loan to tide you over a rough financial patch, you should at least be well verse and informed of what you’re getting yourself into.
A personal loan is properly defined as a loan that is disbursed into a borrower’s personal bank account. This is not to be mistaken with other loans typically associated with it such as an auto loan or a renovation loan. The two mentioned are loans that are paid directly to the car dealer and contractor and not into the personal bank account. As such, auto loans and renovation loans are not appropriate for business use as there is no flexibility in its usage.
Understanding the differences between secured and unsecured loans, conventional and Islamic financing, and the need for Takaful or insurance coverage is crucial. Secured loans require collateral, such as property or assets, while unsecured loans do not. Conventional loans operate on interest, while Islamic financing follows Shariah principles.
• Need collateral or security such as fixed deposit, property, unit trust, other assets
• A guarantor is required, with or without an asset, depending on the eligibility
• No collateral or security required
• No guarantor, except when you don’t meet the eligibility requirements.
• On the principle of money lending, where the bank gains some profits for lending money to borrowers
• Charge an interest rate on the total loan amount
• Can be used for any purpose that is legal in the eyes of the law
• The borrower bears all risks associated with the loan
• Compound interests when payment is overdue
• Borrowing cost capped at 18% p.a.
• Follow the Shariah contract of financing that avoids exploitative gains such as riba' or usury
• Charge a profit rate on the total financing amount
• Can be used for any purposes that are permitted (halal) by the Shariah laws
• The bank bears some of the risks in earning returns
• Does not compound profits when payment is overdue
A debt consolidation loan streamlines your financial obligations by combining multiple debts into one manageable facility. Rather than juggling various debts with differing sizes, lenders, due dates, tenures, and interest rates, this tool allows you to simplify repayments. By consolidating debts, you can often secure a lower interest rate and extend the repayment tenure, resulting in reduced monthly instalments and increased disposable income.
Your income is typically linked to how much you can borrow. While it is not linked to a multiplier of your income, it is linked to your debt service ratio. Meaning how much of your income is dedicated to servicing your total loans. One other aspect other than your gross income is the time on your job. A minimum of 3 months on the job is typically seen as a stable one and anything lesser could result in a lower approval.
The debt-service ratio (DSR) serves as a vital gauge to assess your financial capacity post meeting existing debt obligations. Utilized by banks as a pivotal metric, this calculation determines if you possess sufficient funds to cover monthly instalments.
The formula entails dividing total monthly commitments by total monthly income and multiplying by 100%, exemplified as follows:
It is widely acknowledged that maintaining a balanced DSR significantly enhances loan approval prospects, with the ideal scenario being where total monthly commitments do not surpass total monthly income.
Payslips hold significant importance for numerous employees; however, circumstances may arise where individuals find themselves without this essential document. These situations encompass:
Individuals engaged in self-employment or freelancing operate outside the traditional framework of employee-employer relationships. Unlike salaried workers who receive regular monthly payslips from their employers, self-employed individuals and freelancers manage their own work schedules, foster client connections, and oversee their financial matters independently. As they are essentially their own bosses, there exists no external entity to furnish them with payslips, which serve as standard income proof in many traditional job settings. Moreover, the income of self-employed individuals and freelancers tends to be variable and unpredictable, with substantial earnings from a project in one month potentially followed by financial challenges in subsequent months.
Informal employment pertains to roles that lack legal recognition or protection, often remaining unrecorded in official databases and devoid of standard employment contracts or benefits. Many individuals in this sector receive non-standardized cash payments without accompanying documentation. Consequently, the absence of official pay records or payslips presents obstacles for these workers in substantiating their consistent income, thereby impeding their access to formal financial services.Acquiring a personal loan without a payslip can pose challenges, but there are Some strategies to navigate this situation effectively.
A practical approach is to seek a loan with a co-signer who believes in your repayment capability despite the absence of a traditional payslip. The co-signer should possess a stable income and a robust credit history, as their financial standing will be considered during the loan application process. If approved, the co-signer essentially vouches for you and assumes responsibility for the loan amount. However, it's important to recognize that this places a significant burden on the co-signer, as defaulting on the loan could adversely impact their credit score and overall financial well-being.
Another strategy involves presenting an alternative proof of income to overcome the absence of a payslip. This may entail leveraging connections with friends or family members who operate their own businesses to establish a verifiable income source. By doing so, applicants can avoid engaging costly agencies for this purpose. However, certain criteria must be met to ensure the credibility and authenticity of the income source. These may include being registered and profitable according to the Companies Commission of Malaysia (SSM), maintaining an active website, having a presence on social media, and possessing a fixed-line telephone number. Crucially, the business's financial health must be robust enough to consistently generate revenue to support the declared salary for the loan application. For instance, if the business's monthly sales total RM20,000 and the intended salary profile is RM10,000, it must align closely with the actual earnings to be deemed suitable for this purpose. Any disparities between the expected and actual income may affect the application's viability, emphasizing the importance of aligning the declared salary with the business's financial reality.
A credit report serves as a comprehensive dossier detailing your repayment history across various debts, providing insights into your reliability in meeting loan obligations. Banks commonly refer to the Central Credit Reference Information System (CCRIS) to assess your past repayment behavior, as this database stores credit histories from all Malaysian financial service providers for up to 12 months.
Now, what exactly is a credit score, and how can you ascertain yours? Essentially, a credit score is a three-digit numerical rating that evaluates borrowers' creditworthiness based on their credit histories. Possessing a good credit score can significantly enhance your chances of loan approval, often leading to lower interest rates and expedited approval processes. Conversely, a lower credit score may result in less favorable loan terms or even rejection of your application.
Regularly monitoring your credit score, especially if you have multiple credit commitments, is prudent. One way to do this is through CTOS, a privately-run credit agency that aggregates data from public sources. Banks also reference CTOS when evaluating personal loan applications.
To provide a clearer understanding of credit scores and their implications for lenders, refer to the following table:
By understanding your credit score and its implications, youcan take proactive steps to manage your finances effectively and improve yourcreditworthiness over time.
Your income is typically linked to how much you can borrow. While it is not linked to a multiplier of your income, it is linked to your debt service ratio. Meaning how much of your income is dedicated to servicing your total loans. One other aspect other than your gross income is the time on your job. A minimum of 3 months on the job is typically seen as a stable one and anything lesser could result in a lower approval.
A good rule of thumb is that for secured loans are capped at 12% p.a. and unsecured at 18% p.a. This is the regulation set by the Money Lenders Act of 1951.
Licensed Money Lenders operate as businesses that provide loans to clients with an added interest component. Distinguishing themselves from conventional banks, these lenders typically impose an interest rate of 12% per annum for secured loans and 18% annually for unsecured loans. Despite some negative perceptions, it's increasingly common for individuals to seek loans from them. What many may not realize is that these lenders operate under the governance of the Ministry of Housing & Local Government, regulated by the Money Lenders Act 1951, which sets them apart from illegal loan sharks. Borrowers often turn to licensed money lenders due to their appealing financing terms and expedited fund disbursal process. Compared to banks, they tend to be more accommodating in approving loan applications, offering a wide range of loan packages to choose from. However, it's important to note that the loans provided come with high-interest rates, necessitating careful consideration before borrowing. Check if your moneylender is licensed here.
In Malaysia, the majority of banks apply flat interest rates to their personal loans, distinct from the reducing loan balance rates commonly seen with home loans. With a flat interest rate, interest accrues on the principal loan amount consistently throughout the loan's tenure, irrespective of the outstanding balance. Consequently, the effective interest rate tends to be higher than the advertised percentage. For instance, if you borrow RM10,000 at an 8% interest rate over a 5-year period, the total interest paid amounts to RM4,000, equating to 40% of the loan amount. This characteristic underscores the importance of carefully evaluating the true cost of borrowing when considering personal loans.
Personal loans entail various fees and charges, some of which may catch you off guard if you're not vigilant. While not all fees are detrimental, it's crucial to understand them to avoid unexpected surprises. For instance, a stamp duty of 0.5% of the total loan amount is typically applicable, although some banks may opt to absorb this cost. Notably, banks are no longer permitted to levy processing fees on personal loans, alleviating borrowers from this particular charge. Staying informed about these fees empowers you to make informed financial decisions and ensures you're not unwittingly burdened with unnecessary costs.
At Lendingpot, we assist individuals and businesses in making informed decisions by offering professional insights and streamlining the complexities of the lending process.
We provide bespoke recommendations that align seamlessly with your unique financial situations and goals. Lendingpot optimises your borrowing experience while minimising potential risks by accounting for the matters below:
You can decide to apply it directly through each individual banks and moneylenders or you can apply it through Lendingpot to compare across multiple personal loan lenders online.
We have a dedicated team that will walk you through your entire loan process and help you do the market research you need.
Be ready to be spoilt for choice when we help you compare the best rates across all banks and non-banks so you only get the lowest interest rate and the highest cash out amount. Our rates are same as what the banks can offer or even better.
We do this entirely without cost to you. However our lenders pay us a referral fee to let them compete and win your business. Hence, you can be assured that our advice is unbiased and true to you. Additionally, we give rewards to our members when they get a loan as a way to share our joy.
For better understanding, check out our carefully compiled list of frequently asked questions (FAQs) regarding personal loan terms:
In Malaysia, the typical maximum loan tenure for personal loans set by Bank Negara Malaysia is ten years. However, individual financial institutions may offer varying loan tenures, which could be shorter or longer.
The minimum loan tenure can vary among financial institutions, but it’s commonly around one year. It’s essential to check with your chosen financial institution for their specific minimum loan tenure.
Your choice of loan tenure should align with your financial goals and repayment capacity.
Shorter loan tenures result in higher monthly payments but lower overall interest costs, while longer tenures offer lower monthly payments but may result in higher interest expenses.
Yes, most personal loans in Malaysia allow for early repayment. However, some banks may charge penalties for early repayment or have specific terms related to extra payments.
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