Personal loans are great when you need some extra cash, but they’re not that simple. There are many personal loan mistakes you can make when applying for one in Malaysia.
But don’t sweat it! We’ve got your back. In this guide, we explore common personal loan mistakes to avoid in Malaysia.
Whether you’re a newbie or a seasoned borrower, these tips will help you confidently apply for a personal loan. After all, nobody wants to end up with financial issues!
What are the Consequences of Personal Loan Mistakes in Malaysia
In Malaysia, making personal loan mistakes can have severe consequences. Let’s look at a few examples:
1. Impact on Financial Stability
Taking on a personal loan in Malaysia might seem like a swift solution to your financial difficulties, but it’s crucial to approach this decision with caution and clarity.
For instance, if you do not have a clear repayment plan, you can find yourself trapped in a cycle of debt.
This increased debt burden can overshadow your financial freedom, making everyday expenses and financial obligations challenging to meet.
Moreover, not all loans are created equal. It’s crucial to secure favourable interest rates and terms.
If overlooked, you may be left with high monthly interest payments, making it hard to set aside savings for emergencies or long-term objectives.
2. Damage to Credit Score and Creditworthiness
In Malaysia, certain behaviours can raise red flags, adversely affecting your credit score.
For example, applying for more than three credit facilities within a year paints a picture of financial desperation, often called ‘loan-hungry’ behaviour.
Moreover, each time you apply for a new loan, it reduces your Credit Bureau (CTOS) score.
A lower CTOS score can have far-reaching implications, including higher interest rates on future loans, lower credit limits, or even loan rejections.
The damage to your creditworthiness can also make it increasingly challenging to secure financial assistance when you need it most.
3. Risk of Being Blacklisted
One of the most dire consequences of personal loan mistakes in Malaysia is being blacklisted in the Central Credit Reference Information System (CCRIS).
This is because being blacklisted can make it exceedingly difficult to access credit from other financial institutions.
It’s a situation that can cast a long shadow on your financial prospects, limiting your ability to secure personal loans in the future.
4. Emotional Stress
Beyond the tangible financial consequences, there’s an emotional toll to consider.
Consistently struggling to meet loan obligations or worrying about financial instability can negatively impact your overall quality of life and mental health.
It can lead to sleepless nights, strained relationships, and even more serious mental health issues, making it vital to avoid these personal loan mistakes in the first place.
Read More: How to Apply for A Personal Loan in Malaysia
What are the Top Personal Loan Mistakes to Avoid?
Taking out a personal loan can be a great way to consolidate debts, cover unexpected expenses, or finance a significant purchase.
However, if not approached wisely, it can lead to financial strains and added complications.
To maximise the benefits and minimise the financial risks, it’s essential to avoid the following personal loan mistakes in Malaysia:
1. Borrowing More Than You Can Afford
One of the most fundamental personal loan mistakes is borrowing more than you can comfortably repay. Before taking out a loan, calculate your budget and understand your financial limits.
Otherwise, overextending yourself with a high loan amount can lead to financial stress and challenges in repaying the loan.
2. Not Comparing Interest Rates
Different financial institutions offer varying interest rates. While it may seem minor, even a slight difference can lead to significant contrasts in the total amount repaid.
Therefore, it’s essential to compare rates from multiple institutions, ensuring you get the most favourable terms and, in turn, reducing your overall repayment amount.
3. Not Reading the Fine Print
Another grave personal loan mistake in Malaysia is skimming over the loan agreement without delving into the details.
This document contains vital information, from hidden fees to specific penalties or clauses that could affect your loan and overall financial well-being.
By thoroughly understanding the terms and conditions, you can protect yourself from unforeseen financial burdens.
4. Not Considering Other Financing Options
Personal loans are undoubtedly popular in Malaysia, but they aren’t the only financial products available.
It’s wise to explore other options like credit cards, peer-to-peer lending, or even informal borrowing from family or friends before committing to a personal loan.
By weighing the pros and cons of each, you can make an informed decision that best suits your needs.
5. Missing Payments or Defaulting
Your payment history has an important role in determining your creditworthiness.
Regularly missing payments or, worse, defaulting on a loan can lead to hefty penalties and damage to your credit score, impacting your ability to secure credit in the future.
6. Applying for Multiple Loans Simultaneously
While shopping around for the best rate is wise, applying for several loans simultaneously is not.
This is because it can make banks and financial institutions wary of approving your application. As a result, you should be selective and apply only when it’s truly necessary.
7. Neglecting to Build a Good Credit History
Your credit history isn’t just about avoiding negatives; it’s also about building positives.
Regular and responsible financial behaviour, like paying bills on time, can help you achieve a favourable credit score, which often translates to better loan terms and interest rates.
8. Falling for Loan Scams and Frauds
The digital age has brought convenience but also a surge in scams. Offers that seem too good to be true or lenders demanding upfront fees should raise red flags.
It’s also essential to verify the legitimacy of lenders and consult with financial authorities if in doubt.
9. Incomplete Paperwork
Completing loan paperwork may seem tedious, but it’s a crucial step. Ensure all required documentation is complete and accurate when applying for a loan.
Incomplete paperwork can delay the approval process or even lead to rejection, causing unnecessary setbacks in your financial plans.
Read More: Proof of Income in Malaysia: How to Prepare
When You Should Never Apply for a Personal Loan in Malaysia
Personal loans are a flexible financial tool that can assist you in various situations.
However, there are certain scenarios in which applying for a personal loan in Malaysia should be avoided, as doing so could have adverse consequences for your financial stability and creditworthiness.
1. For Investments
Utilising a personal loan to invest in stocks, cryptocurrencies, or other speculative ventures might seem tempting, but it’s a risky move.
While investments can yield significant returns, they also carry inherent uncertainty.
If your investments don’t perform as expected or, worse, incur losses, you’ll still be legally responsible for repaying the personal loan along with its accrued interest.
This could lead to financial difficulties, as you may find yourself juggling investment losses and a growing debt obligation.
In such cases, it’s generally wiser to explore investment options with your existing funds rather than relying on borrowed money.
2. For Others
Helping loved ones in times of need is a commendable act. However, applying for a personal loan on behalf of someone else is a gesture that comes with significant risks.
For instance, when you sign a personal loan agreement, you become legally responsible for repaying the loan.
If the other person defaults on their payments, it could have serious consequences for you, such as:
- Damage to your credit score
- Financial instability
- Potential legal repercussions
Therefore, it’s best to carefully consider the risks and alternatives before assuming such a financial responsibility.
Read more: Backup Emergency Fund Malaysia: No More Savings But Need Urgent Cash? Do This
How Bluebricks Can Help You Avoid Personal Loans Mistakes in Malaysia
Making the wrong financial decision can lead to stress. Fortunately, Bluebricks, a trusted bank loan and debt consolidation agency in Malaysia, can help!
We offer an array of loan services tailored to meet the needs of our clients, including:
- Personal loan services
- SME loan rejected services
- Mortgage loan rejected services (for buying a new home, refinancing and cashback purposes)
- Collateral loan services
Comprehensive Loan Consultancy Service
One of our major strengths lies in our loan consultancy service. Rather than merely offering loans, we look into our client’s financial circumstances to recommend the most appropriate loan product.
Several factors are taken into consideration when guiding clients. These include:
- The specific loan amount you require.
- The urgency with which the loan amount is needed.
- 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).
Personal Loan Mistakes – FAQs
To help you better understand and avoid common pitfalls, we’ve compiled a list of frequently asked questions related to personal loan mistakes in Malaysia.
Whether you’re a first-time borrower or seeking a refresher, this guide aims to enlighten and safeguard you from potential blunders.
Solving personal loan mistakes in Malaysia can be hard, but it’s important to address these issues promptly to avoid further financial problems.
Here are steps you can take to rectify personal loan mistakes quickly in Malaysia:
- Increase your payments beyond the minimum amount due.
- Make more frequent payments than the required monthly instalments.
- Opt for a lump-sum payment or prepayment of the loan.
- Reduce expenses to allocate more funds for loan repayment.
- Explore refinancing or balance transfer alternatives.
Borrowing more than you can afford is the most significant personal loan mistake to avoid in Malaysia.
Doing so can lead to increased interest, damage to your credit score, and potential legal consequences, which is why you should always assess your repayment capability before taking a loan.
A critical personal loan mistake to make, failing to make a payment can lead to being sued in court, though this is often the last resort taken by the lender if no other solution is found.
