We get it; borrowing money can be daunting, especially when you’re not entirely sure about the fees and charges of a personal loan in Malaysia.
In this article, we aim to demystify the costs of personal loans in Malaysia. If you are puzzled by the complex fees and charges involved, you’re in the right place.
We’ll walk you through the different fees and charges of a personal loan and provide the crucial information you need before making that all-important financial decision.
Why is it Important to Understand the Fees and Charges of A Personal Loan Before Applying
Understanding the fees and charges of a personal loan before applying is crucial for several reasons, all of which lead to a healthier financial life and potentially saving money.
Here are some of them:
1. Budgeting and Financial Planning
Budgeting and financial planning are an integral part of your financial responsibility. They allow you to allocate your resources efficiently, ensuring all financial commitments are met without undue strain.
This is particularly important when it comes to borrowing money through personal loans.
By knowing the total cost of a loan, including all fees and charges, you can create a more accurate budget.
Doing so also minimises your risk of falling into debt or experiencing financial stress.
2. Compare Loan Offers
When comparing loan offers, you’ll quickly find that although banks and lending institutions in Malaysia may advertise similar interest rates, their fee structures differ.
For instance, one bank may offer a lower interest rate but charge a hefty origination fee, while another might have a slightly higher interest rate but no origination fee.
These differences can have a substantial impact on the overall cost of the loan, which is why you should thoroughly read through your loan offer first before signing it.
3. Avoid Unexpected Surprises
Having a clear picture of the total cost of borrowing helps in creating a realistic repayment plan.
It enables borrowers to maintain financial stability and avoid the stress that often comes with unforeseen financial burdens.
4. Negotiation Leverage
A well-informed borrower is empowered to confidently engage in discussions with lenders, using their knowledge of standard personal loan fees as a bargaining chip.
In the competitive lending market, financial institutions may be willing to offer more attractive loan terms to ensure they secure a borrower’s business.
Therefore, this knowledge not only positions borrowers to save money through reduced fees or lowered interest rates but also to secure loan terms more tailored to their financial situations.
5. Make Informed Decisions
Lastly, understanding the fees and charges of a personal loan before applying allows borrowers to make informed decisions about the additional features and services that often come with loans.
For instance, a bank might offer an optional insurance package, which could be beneficial or unnecessary depending on the borrower’s situation.
Read More: How to Apply for A Personal Loan in Malaysia
What are the Fees and Charges of a Personal Loan in Malaysia
1. Origination Fee
In Malaysia, the origination fee is a one-time charge that financial institutions impose at the start of your loan tenure.
Its purpose is to cover the cost of processing your loan application and the administrative tasks involved in establishing your loan account.
The fee is commonly calculated as a percentage of the loan amount, and it can change quite considerably, usually falling between 1% and 6% of the loan you’re taking out.
Moreover, it’s important to be aware financial institutions can directly deduct this fee from your loan proceeds, which affects the actual amount of money you end up with in hand.
2. Processing Fee
The processing fee is an upfront cost that lenders impose to cover the administrative expenses incurred while evaluating the application.
Such expenses include assessing the applicant’s credit history and other relevant procedures that facilitate the decision-making process for the loan’s approval.
Borrowers must understand that they have to pay processing fee irrespective of the outcome of their application, meaning it is non-refundable.
3. Stamping Fee
In Malaysia, the legal formalisation of a loan agreement requires a stamping fee, as stipulated by the Stamp Duty Act 1949
This fee, which is paid to the Malaysian Government’s Stamp Office, is essential for ensuring that the loan agreement is recognised as legally valid and enforceable.
It amounts to around 0.5% of the loan’s total value; however, it is vital to note that not all banks will charge a stamping fee.
4. Early Repayment Charges
Borrowers should also be aware of potential charges when repaying a personal loan early.
Banks and financial institutions may charge an early repayment fee as compensation for the interest they lose if you settle the loan before its scheduled completion date.
This fee could be a set amount or a percentage of the outstanding loan amount.
As a result, it is vital for borrowers to thoroughly understand the terms regarding early repayment in their loan agreement or to inquire directly with their financial institution.
5. Late Repayment Charges
The final fee to be aware of concerning personal loans in Malaysia is the late repayment charge.
This fee applies when a borrower fails to meet the monthly repayment obligation by the due date.
The late payment charge may be a fixed amount or a percentage of the overdue payment, typically varying from 3% to 5% of the scheduled monthly instalment.
Furthermore, if a payment is delayed by 30 days or more, the consequences can escalate.
The financial institution may report the late payment to credit bureaus such as Experian, which could adversely affect the borrower’s credit score.
Once reported, the late payment entry can remain on a credit report for seven years, which can negatively influence a borrower’s future financial credibility.
Read More: Understanding Your CCRIS Statement: A Guide For Beginners
How to Lower Fees and Charges of a Personal Loan in Malaysia
1. Compare Multiple Loan Offerings
To lower the fees and charges of a personal loan in Malaysia, a comprehensive approach is essential.
Begin by exploring multiple loan options from various banks and financial institutions.
These lenders often have differing interest rates, fees, and loan terms, so it’s not wise to go with the first offer you find.
A thorough comparison should include all associated costs, not just the interest rate, such as origination and processing fees.
2. Maintain a Good Credit Score
A pivotal aspect of securing favourable loan terms is maintaining a good credit score. This score greatly influences the interest rates you are eligible for, with higher scores often translating to lower rates and better terms.
For example, regular monitoring and prompt correction of any inaccuracies in your credit report are crucial.
Additionally, you should take proactive measures to improve your credit score, like settling outstanding debts.
3. Be Punctual with Payments
Another effective strategy to lower the fees and charges associated with a personal loan revolves around the punctuality of payments.
By consistently paying loan instalments on time, borrowers can avoid the additional costs that accrue from late payment fees.
But this punctuality does more than just prevent unnecessary charges; it also contributes positively to the borrower’s credit profile.
Financial institutions take note of this reliability and may acknowledge their good financial behaviour by offering them more favourable terms, such as reduced interest rates or even fee waivers.
To maintain this consistency, borrowers can take practical steps like setting up automatic payments or reminders for payment due dates.
4. Avoid Optional Add-Ons (Unless Necessary)
Finally, examine optional add-ons that banks often propose alongside the primary loan offering.
These add-ons, which can range from various insurance options to payment protection plans, are typically accompanied by additional fees that incrementally increase the total cost of your loan.
And while some of these services could offer value, it is crucial to evaluate whether they align with your specific needs.
By carefully considering the use of each add-on and opting out of those that are unnecessary, you can substantially reduce the financial burden of your loan.
But, if you are purchasing any of these supplementary offerings, it is advisable to read through their terms and conditions first.
Read More: A Guide to Personal Loan for Self-Employed in Malaysia
How Bluebricks Can Help You with the Fees and Charges of a Personal Loan
Applying for a loan in Malaysia can be confusing, especially with so many fees and charges to consider. However, Bluebricks can help.
A reputable bank loan and debt consolidation agency, we provide a range of tailored services to streamline your application process, including:
- Personal loan services
- SME loan rejected services
- Mortgage loan rejected services (for buying a new home, refinancing and cashback purposes)
- Collateral loan services
Customisable Loan Consultancy Services
At Bluebricks, we combine professional expertise with a deep understanding of your financial situation.
Our consultants consider multiple factors to help you find the ideal loan for your situation, such as:
- The specific loan amount you require.
- How urgently you need the loan amount.
- Whether you or your parents own a property that has been held for over ten years.
- Your income level.
- Your CTOS score (such as your credit score and credit history).
Fees and Charges of a Personal Loan – FAQs
Understanding the fees and charges of a personal loan is essential to making an informed decision and managing your loan effectively.
To help you navigate this critical component, we’ve prepared a list of commonly asked questions to help you plan your finances with confidence.
Comparing the fees and charges of different personal loan providers is an essential step in finding the most cost-effective loan for your needs.
Here’s how you can approach this task:
- Online Comparators: Use online loan comparison tools that allow you to input your details and see fees and rates from various financial institutions side by side.
- Financial Calculators: Utilise online calculators to understand the total cost of the loan, including all fees over the life of the loan.
To determine the total cost of a personal loan in Malaysia, you should examine the annual percentage rate (APR). It includes both the quoted interest rate and any mandatory fees.
Keep in mind, though, that the APR does not cover charges that are not universally applied, like those for late payments, as these depend on the borrower’s actions.
Additionally, unless you’re serving in the military, the APR might not include costs for credit insurance.
When evaluating the fees associated with a personal loan, it’s important to have a comprehensive understanding to ensure you’re getting a fair deal and to help you compare different loan offers.
Here are some questions you might ask a lender or consider when reviewing the terms of a personal loan:
- Is the interest rate fixed or variable, and if the rate is variable, how often can it change?
- Is there an origination fee for processing the loan?
- How is the prepayment penalty calculated?
