Suppose you’ve found yourself needing financial help or have contemplated taking out a personal loan. In that case, this article can help you understand the personal loan process in Malaysia.
We’ll walk you through the entire personal loan process, from meeting eligibility criteria to common mistakes you can make.
By the end of this article, you’ll be well-equipped to embark on your personal loan journey with confidence, ensuring that your financial goals are within reach.
What Do Banks in Malaysia Consider When Evaluating Personal Loan Applications?
Securing a personal loan in Malaysia isn’t just about walking into a bank and filling out an application form.
There are several factors that banks evaluate before deciding to approve or decline your application. Understanding these factors can significantly improve your chances of getting your loan approved.
Here’s what you need to know:
1. Your Age
In Malaysia, individuals have to be between 21 to 60 years old to apply for a personal loan.
This ensures that borrowers are mature enough to understand the responsibility of a loan while also ensuring they have a source of income to repay the borrowed amount.
2. Your Current & Past Employment
When evaluating personal loan applications, banks in Malaysia pay keen attention to an applicant’s current and past employment status.
One of the primary reasons for this scrutiny is to determine the applicant’s ability to repay the loan.
For instance, banks have a preference for applicants who demonstrate stable employment histories.
Frequent job changes (or job hopping) can be perceived as a sign of financial instability, raising concerns about the applicant’s reliability in loan repayment.
Additionally, banks favour those in permanent positions over those in contract roles. The rationale behind this is simple: permanent positions offer more job security, suggesting a steady income stream.
However, this criteria is different for self-employed individuals. Given the variable nature of their incomes, they might be required to provide additional documents to prove their financial stability.
Furthermore, it’s worth noting that certain banks have a soft spot for applicants associated with reputed or well-established companies.
Such affiliations often carry an implicit guarantee of better financial health and stability, making these applicants more appealing candidates for personal loans.
3. Your Salary
Another factor banks in Malaysia consider when evaluating personal loan applications is the applicant’s salary.
A higher salary not only demonstrates an individual’s ability to repay the loan but also affects the loan amount they might qualify for.
Moreover, banks in Malaysia generally offer borrowers personal loans that are limited to a maximum of 30% of their existing financial obligations.
This is to ensure that borrowers do not become overly indebted and are capable of managing their repayments efficiently.
Some banks even offer preferential loan terms to certain income brackets.
For example, several institutions provide loans to specific types of income earners where the loan amount can be as high as 20 times their monthly salary.
However, before deciding to take up any loan, it’s critical for borrowers to evaluate their financial commitments, such as:
- Existing liabilities
- Monthly expenses
- Future financial obligations
By doing so, borrowers can determine if they are able to handle additional debt.
4. Your Credit Score
Your credit score tells banks and financial institutions how reliable you are when repaying loans.
Having a higher credit score can significantly increase your chances of securing a loan, whereas a lower score can make it more challenging.
In Malaysia, banks don’t just rely on their internal assessment of your financial health.
They cross-check your credit score with established credit rating agencies, like CCRIS (Central Credit Reference Information System) and CTOS.
These agencies consolidate your credit activities, from credit card usage to loan repayments, and present them in a format that banks can easily understand and evaluate.
5. Your Payment History
If you have a history of timely payments, it reflects well on your application, indicating that you’re likely to meet future payment obligations.
On the other hand, any defaults, late payments, or other negative financial markers can hinder your chances of loan approval.
This is because if you’ve struggled with repayments in the past, banks might be wary of approving your loan, fearing similar issues might arise.
Read More: Proof of Income in Malaysia: How to Prepare
What is the Personal Loan Process in Malaysia
Navigating the personal loan process in Malaysia can seem challenging, but by understanding each step, you can simplify the journey and ensure a smooth transaction.
Here’s a step-by-step guide to help you navigate the personal loan process in Malaysia:
1. Determine Your Loan Needs
Before diving into the loan application, first, determine how much you need to borrow. Calculate your expected expenses and weigh them against your repayment capability.
You should also take into account your estimated interest rate and check if the bank or financial institution you’re considering has any upfront fees.
2. Research Your Options
The next step in the personal loan process is to conduct in-depth research on your options. Start with online loan comparison platforms to collect essential information.
Equally important is securing a loan proposal from a banker prior to any agreement. Such a proposal will outline the estimated loan amount, the interest rate, and the repayment period.
In order to receive this proposal, you’ll need to provide the banker with your income documentation. You can then expect to receive the detailed estimates within one to three days.
Borrowers, however, must understand that there is no obligation to sign the bank’s application form immediately.
You have the right to receive and understand the full details of the loan proposal before signing anything.
This cautionary step ensures that you do not commit to any bank’s terms and conditions prematurely.
Plus, only after careful comparison of the loan offers from various banks should you proceed to apply with the one that best suits your financial needs and conditions.
3. Gather Your Documents
Banks and financial institutions in Malaysia require specific documentation to process your loan application. These documents typically include:
- A copy of your NRIC.
- Payslips and corresponding bank statements for the last three months (if your net income has remained the same), or for the last six months (if your net income has varied over the last three months).
- The latest 2 years’ EPF statement details (e.g. 2022 and 2023). These can be downloaded from your EPF i-Account.
Here are also several optional documents you may need to submit:
- EA Form.
- Income tax returns with tax receipts for the last two years (Borang BE).
4. Submit Your Application (H3)
The personal loan application process in Malaysia is quite flexible. One traditional method is to visit your bank’s branch in person.
But for those who might find visiting the bank inconvenient or are pressed for time, another option is to call your bank directly.
However, in the digital age, online applications have surged in popularity.
Most banks in Malaysia now offer online platforms where individuals can apply for personal loans from the comfort of their homes.
5. Wait for Approval
Once you’ve submitted your application for a personal loan, one of the critical stages begins: waiting for approval.
Your bank or financial institution will carry out a credit check to check your creditworthiness as well as thoroughly review your application and the accompanying documents.
Should everything check out and you fit the profile of a qualified borrower, your application will be approved. At this stage, your bank or financial institution will present you with a loan offer.
It is an official document that elucidates key details of the loan you’re about to undertake, such as:
- The loan amount you’re eligible for.
- The interest rate.
- Loan tenure.
- The amount you’ll be required to pay back monthly.
6. Loan Acceptance & Disbursement
After you’ve received your loan offer, it’s crucial to review its terms thoroughly. If the terms are satisfactory and in line with your needs, you can accept the offer by signing the loan agreement.
However, it’s worth noting that not all loan applications will sail through smoothly.
Depending on the borrower’s creditworthiness, employment status, and other financial indicators, the bank might have additional requirements.
Some banks, for instance, may ask the borrower to provide collateral or introduce a guarantor.
Once all checks are done, the loan agreement is signed, and any additional requirements are fulfilled, the bank will release the loan amount.
This is done by transferring the funds to the borrower’s designated bank account.
7. Loan Repayment
With the loan amount in your account, the focus shifts to repayment. Ensure you adhere to the agreed-upon repayment schedule, making timely monthly instalments.
Punctuality is key here; delayed payments can incur additional fees or penalties.
8. Closing the Loan
As you approach the end of your loan tenure and have made all repayments, the lender will issue a loan closure letter.
This document confirms that you’ve settled the loan in full, marking the end of your loan journey. It’s essential you keep the document safe and accessible.
What are Common Mistakes in the Personal Loan Process?
Sometimes, despite all your research and preparation, you can still make errors in your personal loan application, which can lead to loan denials or less favourable terms.
Here are four important personal loan mistakes to know and avoid:
1. Applying with a Low Credit Score
Banks and other financial institutions in Malaysia use your credit score to assess your creditworthiness.
A low credit score, therefore, implies a higher probability of default, making them hesitant to approve a loan or only doing so with higher interest rates.
This could lead to more expensive loans or even outright denials.
To avoid this mistake, it’s essential that you regularly check and manage your credit score and work on improving it by:
- Paying your bills on time.
- Reducing your outstanding debt.
- Managing your credit responsibly.
Overborrowing refers to the act of taking out a loan amount that’s more than what you actually need.
While it might be tempting to borrow a little extra for unforeseen expenses or future needs, doing so can create financial burdens that are challenging to manage.
Firstly, overborrowing results in higher monthly payments, potentially straining your budget and harming your credit score.
Secondly, a larger loan increases total interest costs, making you pay more for money you didn’t truly need.
As a result, you should carefully assess your financial needs and determine the exact amount required before applying for a loan.
Borrow just that and resist the temptation to ask for more. Remember, it’s always possible to take out another loan in the future should an unexpected need arise!
3. Bad CCRIS Status
In Malaysia, missing repayments for an extended period (e.g. over six months for personal loans or credit cards) can label your CCRIS record as a ‘special attention account’.
This label is not something to be taken lightly, as it sends warning signals to potential financial institutions about your creditworthiness.
What’s more, even if you have a positive payment history for other credit facilities listed on the CCRIS report, the mere presence of a ‘special attention account’ can result in declined loan approvals.
Banks operate on a risk assessment basis, and any sign of potential default or risk can sway their decision, even if you have a positive payment history for other credit facilities.
In addition to missed repayments, there are other warning signs on your CCRIS that can jeopardise your personal loan process. Examples include:
- Enrolling in AKPK, a debt management service provided by Bank Negara Malaysia (BNM).
- Having past legal actions taken against you (e.g. lawsuits).
4. Facing Bankruptcy
Another common error in the personal loan process is failing to recognise the lasting impact of bankruptcy.
It’s crucial to understand that bankruptcy prohibits individuals from obtaining loans from banks. The same restriction applies to those with an outstanding legal case or summons.
And contrary to what some may believe, clearing bankruptcy or resolving legal issues does not immediately restore eligibility for a loan.
In fact, one must typically wait two years after these matters are settled before they are eligible for a loan from banks.
Moreover, some might think that turning to alternative financial services like Bluebricks could offer a solution. Unfortunately, this is not true.
Therefore, it is very important to understand the lasting effects of bankruptcy and legal disputes on borrowing opportunities.
How Bluebricks Can Help You with the Personal Loan Process in Malaysia
The personal loan process in Malaysia can be overwhelming, especially when you’re trying to figure out which type of loan is right for your unique financial situation.
We offer a broad range of loan solutions to cater to various financial needs and requirements, including:
- Personal loan services
- SME loan rejected services
- Mortgage loan rejected services (for buying a new home, refinancing and cashback purposes)
- Collateral loan services
Personalised Loan Consultancy Service
At Bluebricks, our experts are committed to ensuring you get the right personal loan. Our consultancy service is designed to offer personalised recommendations.
Factors considered 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 Process – FAQs
With varying interest rates, terms, and conditions across banks and financial institutions, it’s natural to have questions about the personal loan process.
To aid your understanding and decision-making, we’ve compiled three frequently asked questions about the personal loan process in Malaysia.
For most banks and financial institutions in Malaysia, the personal loan process typically takes five to seven business days. In some instances, however, they might even provide same-day funding.
In order to speed up your personal loan process, you should:
- Prepare all the required documents beforehand. This includes your MyKad copy, recent payslips, EPF statement, and details of your disbursement account.
- Be either a Malaysian citizen or a permanent resident.
- Note that not all banks can disburse loans within an hour. Be aware of the process and timelines before selecting a lender.
Yes, but there are conditions. Generally, borrowers are given a set period to sign the Letter of Offer and the Loan Agreement. Failing to do so may result in the loan being cancelled.
Plus, if you cancel the loan after signing the Letter of Offer, most banks won’t charge legal fees since the Letter of Offer is bank-generated, not lawyer-produced.
However, a bank might impose a minor penalty for loan cancellation. It’s advisable to consult your bank for specific details.