Are you looking for financing options? Chances are, you may have considered applying for a personal loan in Malaysia.
While personal loans are known for their easy and fast approval, understanding the basics of personal loans is essential before you make your choice.
Not to mention, it also comes down to your credit score, income and debt service ratio. Read on for our handy guide on all things personal loans.
What is a Personal Loan?
A personal loan is a type of loan you can borrow from banks, licensed online lenders and credit union. Typically, it is disbursed in a lump sum amount with set repayments and interest rates.
Personal loans are typically unsecured loans, which means you do not need to offer collateral to the lender. Moreover, the repayment terms are shorter than a mortgage loan, ranging from one to ten years.
How Does A Personal Loan Work?
The process of applying for a personal loan in Malaysia is similar to applying for a credit card. In short, you will need to complete your loan application, submit it to your lender along with your supporting documents and wait for approval.
After submitting your loan application, the bank or lender will verify your personal details and financial information as well as run a credit check.
From your CTOS or CCRIS reports, the lender can view your credit history and credit score to determine your creditworthiness. In other words, how reliable you are as a paymaster. Simply put, a high credit score and sufficient credit history (at least 1 year) will improve your chances of approval.
Once your loan application is approved, you will immediately receive the funds from the lender, and it is disbursed into your bank account. After receiving the funds, you must start repaying the monthly instalments.
Throughout the life of the loan, you will pay the same amount, which is a small portion of your principal plus fixed interest charges.
You should also beware of scams and frauds. Bear in mind that banks do not require an upfront payment for paperwork, processing, mortgage, and insurance. Moreover, fraud syndicates may show you official-looking documents from the bank. If your loan broker or firm requests advance payment for such fees, it is likely a scam.
How it usually works: Once approved, the bank automatically deducts the necessary fees and directly transfers the remaining loan amount to the borrower’s bank account.
When Should You Apply for a Personal Loan?
For the right reasons, a personal loan can be a helpful financial tool. As it is an unsecured loan, there is no risk of losing your home or personal assets. While there are no limits to what you can do with a personal loan, you should only take out a loan for justified reasons.
When used wisely, a personal loan can be used to:
- Consolidate debt
- Ease cash flow
- Fund home renovation
- Finance a wedding
- Secure higher education
- Emergency purposes (e.g. medical fees)
Hence, a personal loan may be the right choice, if you:
- Need funds immediately
- Have a good credit score
- Want to consolidate high-interest debts
- Need to pay off necessary expenses
Besides having a valid reason to apply for personal loans, you should also weigh the pros and cons of personal loans. This way, you can see if the benefits of a personal loan are worth the risks for your unique situation.
The Pros of A Personal Loan
Here are some of the advantages of personal loans.
1. Easy application process
Applying for a personal loan is relatively straightforward and hassle-free. The usual documentation required is your identification, EPF or tax forms, and bank statements. No matter which bank or lender, the application process is nearly identical.
2. Fast approval and access
Generally, personal loans have quicker approvals than other loan types. In fact, some personal loans offer same-day or even next-day approvals and disbursement.
3. No Collateral Required
With no collateral involved, there is no risk of losing your property or any other valuable asset. However, personal loans come with higher interest rates and approval difficulty due to their unsecured nature. This is because the lender has to take the risk and trust that you will repay the loan.
The Cons of A Personal Loan
Here are the potential drawbacks of taking out a personal loan.
1. Higher interest rates
The interest rates for personal loans can be higher than other financing options. Moreover, borrowers with poor credit may encounter higher interest rates, up to 18% per annum.
2. Limit on borrowed amount
The amount you can borrow depends on your income level and credit score. Unlike other loan types, the loan amount is only up to RM250,000. Should you wish to borrow a larger sum, it would be better to go for a refinancing loan (if you are a homeowner).
3. Potentially damage credit score
Falling behind on monthly instalments or missing them entirely may negatively impact your credit score. This will affect your ability to get approved for other loans in the future and limit your chances of getting good rates.
Can I Refinance My Personal Loan?
As with home loans, it is possible to refinance your personal loan for a new one with better terms or change to a different lender. This is called a ‘balance transfer’.
There are situations where swapping your current loan for a new one can benefit your finances. For example, you can switch to a personal loan with lower interest rates or extend your tenure for smaller monthly repayments.
Another option for refinancing involves applying for a new personal loan to consolidate your multiple outstanding personal loans. By consolidating your multiple high interest personal loans with a new personal loan, you can save money on interest and potentially have some cash on hand remaining.
How Bluebricks Can Help You
As a one-stop loan specialist, Bluebricks can help you choose the best personal loan to suit your needs, affordability and eligibility.
Through our refinance housing loan rejected services, we also provide consultation and efficient solutions for your future refinancing needs.
A Trusted Loan Agency in Malaysia
With years of loan consultancy experience and professional expertise, Bluebricks is a professional loan specialist that provides reputable extensive loan rejected services to help you overcome financial difficulty.
Whether submitting or resubmitting a new loan application, Bluebricks offers FREE consultations (without upfront fees) to heighten your chances of approval.
Personal Loan in Malaysia — FAQs
In essence, make sure you have a clear purpose before you take out a personal loan. The notion of fast, easy cash may be tempting, but you will also need to start paying back immediately. Here are some more quick facts on personal loans that you may want to know.
1. When is a personal loan not a good idea?
You should reconsider applying for a personal loan if these apply to you:
- You do not need the funds urgently
- You cannot afford the monthly repayments
- You are unable to control your spending
- You do not have a proper reason to get the loan
2. What are the other alternatives to a personal loan?
Besides personal loans, you can choose other ways of financing, such as refinancing your housing loan, applying for a home equity loan or getting a credit card.
3. Is it possible to get a personal loan if I am unemployed?
While it is possible, the chances of approval are very low. This is because banks and lenders will typically request your proof of income. Even so, a borrower with a good credit score, credit history and stable employment will qualify for better interest rates and terms.
4. What is personal loan compression?
A loan compression is also known as multiple loan submissions. By engaging with a loan agency, you can submit loan applications to multiple banks at once. This may allow a borrower to obtain multiple loans that may be above their financial affordability.