From empowering your entrepreneurial ventures to curating the picture-perfect wedding celebration, we have curated insights and comparisons that blend seamlessly with your lifestyle so you can live your life to the fullest. Let’s navigate the world of personal loans together, turning your aspirations into achievable realities.
Read more to discover effective ways to manage your finances:
1. What is a Personal Loan?
A personal loan is a sum of money borrowed from a bank with interest, and it must be repaid in fixed monthly instalments until the end of the loan term. While the concept is straightforward, some terms might seem unfamiliar.
Here is a breakdown of commonly used terms in relation to personal loans:
- Interest Rate
This is the amount (usually a percentage) charged by the bank on the loan amount. It is akin to the interest earned on savings or current accounts. - Per Annum (p.a.)
The interest rate is charged on a per-annual or yearly basis. For example, a 5% p.a. interest on an RM10,000 loan means an annual interest charge of RM500. - Principal
The principal is the loan amount you apply for, and the interest is calculated based on this amount. For instance, an RM10,000 loan with a 5% interest rate results in a total borrowing amount of RM10,500. - Tenure
This refers to the repayment period, and choosing the right tenure is crucial. A shorter period means higher monthly instalments, while a longer period leads to higher interest. - Instalment
You need to pay back your loan every month until the end of the tenure. The instalment amount is fixed, calculated on the total borrowing amount, and divided by the total number of months. - Penalty
A fee is charged by the bank for overdue payments. - Default
Non-payment of a personal loan for over 3 months. This can lead to higher finance charges, legal action, and a negative impact on your credit score, making it challenging to secure future loans. Your repayment history stays in the CCRIS database for up to 12 months.
2. What Type of Personal Loan is Suitable for Your Lifestyle?
The type of personal loan you should apply for depends on your specific financial needs and circumstances. Here are some common types of personal loans and their features:
| Loan Type | Features |
|---|---|
| Secured Loans | • Requires collateral (e.g., fixed deposit, property, unit trust, other assets) • Guarantor may be required based on eligibility, with or without an asset, depending on eligibility |
| Unsecured Loans | • No collateral or security required • No guarantor is required, except when eligibility criteria are not met |
| Conventional Loans | • Based on the principle of money lending, with the bank gaining profits • Interest charged on the total loan amount • Can be used for any legal purpose •Borrower bears all risks and compound interests when payment is overdue |
| Islamic Loans | • Follows Shariah financing contract, avoiding exploitative gains such as riba’ or usury • Charges a profit rate on the total financing amount • Can be used for any Shariah-permitted purpose • Bank bears some risks, does not compound profits when payment is overdue |
| With Takaful or Insurance Coverage | • Provides liability coverage for death or total permanent disability • Settlement of unpaid balances in the event of death or disability • Slightly more expensive due to coverage added to the total borrowing amount |
| Without Takaful or Insurance Coverage | • Borrower/beneficiary responsible for covering unpaid balances in the event of death or total permanent disability • Borrower receives 100% of the total borrowing amount • Not added to the total borrowing amount |
3. What is the Amount of Interest You Have to Pay?
The interest you’ll be required to pay is determined by various factors, including your credit score, loan amount, and repayment period. Securing the lowest interest rates depends on having a good or excellent credit score and opting for the shortest repayment period.
It is essential to note that the ultimate interest rate on the loan will be determined by the bank. Sustain a strong credit history by regularly reviewing your CCRIS report and examining your CTOS report.
4. How Many Years Will It Take To Repay Your Loan?
The loan tenure, or the number of years you choose to repay your loan, determines the duration of your monthly payments until the loan is fully paid off. Financial institutions typically offer repayment terms ranging from 1 to 7 years. It is important to consider that your monthly payments and interest rates are influenced by the chosen repayment period.
| Period | Shorter (1 – 3 years) | Longer (4 – 10 years) |
|---|---|---|
| Interest Charge | Low RM10,000 x 5% x 2 years = RM1,000 | High RM10,000 x 5% x 8 years = RM4,000 |
| Monthly Instalment | High RM11,000 ÷ 2 years = RM4,500 per month | Low RM14,000 ÷ 8 years = RM1,750 per month |
5. What is the Maximum Amount a Bank Can Lend You?
Banks typically offer loan amounts ranging from RM5,000 to RM200,000, the principal amount. Once you have settled on your desired loan amount, the next step is choosing a tenure that aligns with your financial capacity.
For a clearer understanding, especially regarding potential factors like high-interest rates and swift approval, assess your ability to cover monthly commitments by calculating your Debt-Service Ratio (DSR).
The Debt-Service Ratio (DSR) is a tool to gauge your remaining cash flow after meeting your debt obligations. Banks apply this calculation to assess if you have adequate funds to cover your monthly instalment, employing the formula:
Total Monthly Commitments ÷ Total Monthly Income x 100% = DSR
e.g. RM2,000 ÷ RM4,000 x 100% = 50%
For instance, if your total monthly commitments equal RM2,000, and your total monthly income is RM4,000, the resulting DSR would be 50% (RM2,000 ÷ RM4,000 x 100%).
6. How Can You Determine Your Eligibility for a Personal Loan Application?
To be eligible for a personal loan application, you need to fulfil the criteria established by the bank. These criteria include, but are not limited to:
- Malaysian, permanent resident, or foreigner
- Aged from 21 to 60 years
- Salaried employee (public/private sector) or self-employed
- Has fixed, contract, commission basis income
- Own house, rented, living with family/relatives, company-provided, etc
7. What is the Best Bank for a Personal Loan?
Now that you have learned about the important aspects of a personal loan and if you are uncertain which bank offers the best, RinggitPlus has compiled a loan comparison in Malaysia for your reference.
| Bank/Licensed Lender | Interest/Profit Rate | Minimum Monthly Income | Loan/FinancingAmount | Borrowing Period | Can Government/ GLC Apply? |
|---|---|---|---|---|---|
| Alliance Bank | 4.99% – 15.28% p.a. | RM3,000 | RM5,000 – RM150,000 | 1 – 7 years | Yes |
| RHB | 8.59% – 13.76% p.a. | RM1,500 | RM2,000 – RM150,000 | 1 – 7 years | No |
| CIMB | 6.88% – 14.88% p.a. | RM2,000 | RM2,000 – RM100,000 | 2 – 5 years | No |
| Standard Chartered | 7.50% p.a. | RM3,000 | RM3,000 – RM200,000 | 1 – 5 years | No |
| BSN | 6.00% – 8.50% p.a. | RM3,000 | RM5,000 – RM400,000 | 2 – 10 years | Yes |
| Maybank | 6.50% – 8.00% p.a. | RM3,500 | RM5,000 – RM100,000 | 2 – 6 years | Yes |
| Hong Leong Islamic Bank | 9.00% – 12.50% p.a. | RM2,000 | RM5,000 – RM150,000 | 2 – 5 years | No |
| Bank Islam | 4.50% – 7.50% p.a. | RM4,000 | RM10,000 – RM300,000 | 1 – 10 years | No |
| HSBC Amanah | 4.88% – 10.50% p.a. | RM3,000 | RM6,000 – RM250,000 | 2 – 7 years | No |
| AmBank | 8.00% – 11.99% p.a. | RM3,000 | RM2,000 – RM150,000 | 1 – 5 years | Yes |
| Bank Rakyat | 7.66% – 10.22% p.a. | RM2,000 | RM5,000 – RM400,000 | 1 – 10 years | No |
| UOB | 9.99% – 11.99% p.a. | RM3,000 | RM5,000 – RM100,000 | 1 – 5 years | Yes |
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