Looking for ways to reduce commitment and ease your monthly financial burden? Many Malaysians find themselves struggling to keep up with multiple loan payments each month, leaving little money for other expenses.
A personal loan might be the solution you’re looking for, as it is a popular way for people to manage their finances better and reduce their monthly bank commitments.
Why Use a Personal Loan to Reduce Commitments?
Lower Monthly Payments
You can combine all your debts, like credit cards and other loans, into one personal loan with a lower monthly payment.
Instead of struggling with multiple high payments, you’ll free up extra cash for other expenses.
Reduce Debt Stress
Managing multiple debts can be overwhelming. A personal loan helps by turning all your payments into one, usually with a lower interest rate.
This means less stress about different due dates and varying interest rates.
Flexible Loan Terms
Personal loans let you choose what works best for you. Want to clear your debt faster? Go for a shorter term. Need lower monthly payments? Choose a longer loan period.
Refinance High-Interest Debt
Credit cards and some loans come with high interest rates. A personal loan typically offers better rates, reducing your monthly financial load.
Better Financial Health
By clearing overdue bills or consolidating bad credit loans with a personal loan, you can improve your credit score and financial stability.
How Does a Personal Loan Help Reduce Commitment?
1. Consolidate High-Interest Debt
What to do: Use a personal loan to pay off higher-interest debts, such as credit cards.
Why it helps: Personal loans often have lower interest rates than credit cards or other unsecured debts, reducing the total monthly repayment amount.
Example:
- You owe RM10,000 on a credit card at a 18% annual interest rate and RM5,000 on another loan at a 12% rate.
- Take a personal loan at 6% to pay off these debts.
- Your monthly payment may drop significantly as the personal loan repayment is spread over a longer tenure with a lower interest rate.
2. Extend Loan Tenure
What to do: Opt for a personal loan with a longer repayment period to lower monthly instalments.
Why it helps: Spreading the repayment over more years reduces the monthly burden, though it may increase the total interest paid over time.
Example:
- If your current monthly commitments total RM2,000 over five years, refinancing with a personal loan for seven years might reduce your monthly payments to RM1,500.
3. Consolidate Debts Into One Loan
What to do: Combine multiple loans into one single personal loan.
Why it helps: Simplifies payments (one loan instead of several) and potentially lowers the overall monthly repayment amount.
Example:
- Instead of paying RM500 for a car loan, RM600 for a credit card, and RM700 for a personal loan (total RM1,800), consolidate into a personal loan with RM1,400 monthly repayment.
4. Take Advantage of Early Settlement Discounts
What to do: Use the personal loan to settle loans with banks offering early settlement discounts.
Why it helps: Reduces the principal amount owed, which can lower commitments.
Example:
- If you settle a loan early and save RM5,000 in interest, this reduces the amount you need to repay monthly for the new personal loan.
5. Pay Off Small Debts
What to do: Use a personal loan to clear small debts with high commitments.
Why it helps: Clearing smaller loans can free up income for larger commitments or other expenses.
Example:
- A RM10,000 loan with a short tenure may have a monthly payment of RM1,000. Clearing it with a personal loan spread over a longer tenure reduces your monthly repayment significantly.
6. Refinancing Property Loans with Debt Settlement
What to do: If you have bad credit or high commitments, banks may reject your home refinancing application. In this case, start by applying for a personal loan to settle your bad credit and reduce your commitments.
Once your credit situation improves, you can then proceed to refinance your house to settle all remaining debts. This strategy is particularly useful if your income level doesn’t qualify you for a 10-year personal loan tenure.
Why it helps: Settling debts with a personal loan can make you eligible for property refinancing, which may significantly reduce monthly commitments.
Example:
- Using a RM50,000 personal loan to pay off high-interest credit card debt could allow you to refinance your home at a lower rate, cutting your monthly payments by RM500 or more.
Is a Debt Consolidation Loan a Personal Loan?
Yes, a debt consolidation loan is a type of personal loan. Here’s what you need to know:
- What it is
A debt consolidation loan is a personal loan that combines multiple debts into one. The lender provides the money to pay off your other debts, leaving you with a single loan to pay back.
- Benefits
Debt consolidation can help you reduce your interest rate, lower your monthly payments, and simplify your finances. You’ll only have one bill to pay each month, instead of multiple debts.
- How it works
Apply for a debt consolidation loan to pay off your existing credit card debts and personal loans.
By lowering the interest rate (from credit card’s 18% to personal loan’s 7%) and extending the loan tenure (from 5 years to 10 years), you can reduce your monthly instalments by up to 70% compared to your current payments.
Read More: How to Get a Consolidation Loan in Malaysia?
Can I Get a Personal Loan to Reduce Commitment If I Have Bad Credit?
The short answer is no, but that’s where Bluebricks can help.
We assist by funding you to clear your bad credit, making it possible for you to qualify for a personal loan.
For more details on how we can support you, visit our sales page here:
Personal Loan for High Commitment Problems.
If you want to learn more about bad credit and how to manage it with your resources, check out this guide:
Bad Credit Loans Guide.
Not ready to proceed yet? No worries! Keep reading to explore how personal loans can help you reduce your commitments.
What Are Other Methods to Reduce Commitment Besides a Personal Loan?
If taking a personal loan isn’t the right option for you, there are several other strategies to reduce your financial commitments and improve your cash flow. Below is a practical guide:
1. Negotiate with Creditors
Why It Helps:
If you’re struggling with repayments, negotiating directly with your creditors can lead to:
- Lower monthly payments.
- Extended loan tenures.
- Waived penalties or fees.
How to Do It:
- Be upfront with your creditors about your financial situation.
- Request a restructured repayment plan that fits your cash flow.
Consequences to Consider:
- Restructuring Your Loan: Once you restructure your loan, it may appear on your credit report, making it difficult to secure new loans in the near future until the restructured loan is fully repaid.
2. Refinancing Your Property
Why It Helps:
Refinancing lets you tap into the value of a property to lower your monthly commitments or settle existing debts.
How to Do It:
- Refinance your own property or, if necessary, use a parent’s or spouse’s property to refinance.
- Opt for a longer tenure or lower interest rate to reduce monthly payments.
Consideration:
Ensure you fully understand the costs involved, like legal fees and stamp duties, before proceeding.
3. Balance Transfer for Credit Cards
Why It Helps:
Credit cards typically have the highest interest rates (up to 18% p.a.). A balance transfer can help you consolidate credit card debts at much lower interest rates (as low as 0% for promotional periods).
How to Do It:
- Transfer your outstanding balance to a card offering a low or 0% balance transfer rate.
- Pay off the balance within the promotional period to avoid higher interest charges.
Pro Tip:
Use balance transfers as a short-term solution to manage high-interest debts.
4. Increase Your Income Stream
Why It Helps:
Boosting your income helps you clear debts faster and improve cash flow.
How to Do It:
- Take up part-time work, freelancing, or side hustles (e.g., delivery services, tutoring, or online sales).
- Invest in skills to qualify for promotions or higher-paying jobs.
- Explore passive income options, such as renting out property or selling unused assets.
5. Cut Down on Unnecessary Expenses
Why It Helps:
Reducing your expenses frees up more money to repay debts or save for emergencies.
How to Do It:
- Track your spending using budgeting apps or spreadsheets.
- Cancel subscriptions or memberships you no longer use.
- Opt for more cost-effective alternatives, such as cooking at home instead of dining out.
- Focus on needs over wants and avoid impulsive purchases.
6. AKPK (Debt Management Programme by Bank Negara Malaysia)
Why It Helps:
AKPK provides FREE services to help individuals manage their debts and improve their financial literacy.
Consequences to Consider:
After enrolling in AKPK, a ‘K’ status will appear on your credit report. With this status, you will not be able to obtain any new loans or credit cards (including car loans, house loans, credit cards, or personal loans) until all loans marked with “K” status are fully paid off.
How to Do It:
- Contact AKPK to discuss your debts and income.
- AKPK will negotiate with your creditors on your behalf to create a debt management plan (DMP).
- This plan may lower your monthly commitments through reduced interest rates or longer tenures.
Pro Tip:
AKPK’s services are entirely free, making it a great first step for those overwhelmed by debt.
7. Declaring Bankruptcy (Last Resort)
Why It Helps:
Bankruptcy allows you to legally resolve debts you cannot repay, offering a fresh start.
What to Consider:
- Long-Term Impact: Bankruptcy severely limits your financial freedom, including restrictions on borrowing money or travelling abroad.
- Eligibility: Bankruptcy is typically declared when your debts exceed RM100,000, which you cannot repay.
How to Proceed:
- Seek legal advice to understand the implications.
- Only consider this option when all other methods have been exhausted.
Final Thoughts
Reducing financial commitments involves a combination of strategic actions and discipline.
Personal loans are one option, but exploring these alternatives—like negotiating with creditors, refinancing property, or cutting expenses—can also help you regain control of your finances.
Choose a method that aligns best with your financial situation and goals.
What’s the Benefit of Reducing My Monthly Commitment First Before Acquiring a New Loan?
Reducing your bank monthly commitment before applying for a new loan can save you from future financial headaches. Here’s why:
1. Avoid Getting Unfavorable Terms Due to a Low Credit Score
If your credit score is low because of your high commitments, banks might offer you a personal loan with poor terms. This means:
- Higher interest rates: You’ll pay more in the long run.
- Shorter loan tenures: Your monthly payments could become unaffordable.
- Smaller loan amounts: You might not get enough money to cover your debts.
By reducing your commitments first, your credit score improves, and you’ll likely get better terms, such as lower interest rates and larger loan amounts.
2. Solve Your Debt Problem Effectively by Avoiding High-Interest Personal Loans
If you apply for a new loan without reducing your commitments, the bank may consider you a high-risk borrower. That is why:
- Banks compensate for higher risks by charging higher interest rates.
- Instead of solving your high-interest debt (e.g., credit cards), you might end up adding another expensive loan to your
Reducing your commitments first makes you a less risky borrower, helping you secure a loan with lower interest, which will actually help consolidate your debts.
3. Improve Your Debt Service Ratio (DSR)
Banks look at your Debt Service Ratio (DSR) when assessing loans. If your current commitments are too high compared to your income, you are more likely to get rejected or approved with harsh conditions.
Reducing your commitments first improves your DSR, making it easier for banks to approve your loan with favourable terms.
4. Prevent Long-Term Financial Stress
If you rush to get a new loan without addressing your commitments, you risk:
- Higher monthly payments: This adds more pressure on your budget.
- Debt snowball effect: Multiple high-interest loans can spiral out of control, making it harder to pay off your debt.
Reducing commitments first ensures you can manage new payments without stress.
5. Increase Chances of Approval
When banks see lower monthly commitments and a clean credit report, they are more confident in lending to you. This increases your chances of approval, especially for larger loan amounts at lower interest rates.
What is the fee incurred for a Personal Loan to Reduce Commitments?
When taking a personal loan to reduce your financial commitments, it’s important to understand the common fees and charges involved.
Below is a breakdown of the typical costs for personal loans from both conventional and Islamic banks:
1. Stamp Duty
What it is:
A government-imposed fee as outlined in the Stamp Duty Act 1949.
Cost:
0.5% of the total financing amount.
Example: For a loan of RM50,000, the stamp duty would be RM250.
2. Wakalah Fee (Islamic Bank) or Processing Fee (Conventional Bank)
What it is:
A small administrative fee charged by the bank.
Cost:
- Islamic Banks: Wakalah fees are minimal, typically ranging from RM25 to RM50.
- Conventional Banks: Many banks do not charge a processing fee at all.
3. Insurance or Takaful (Islamic Bank)
What it is:
Optional coverage to protect against unforeseen events (e.g., job loss or death).
Cost:
It ranges from 1% to 3% of your loan amount.
Example: For a loan of RM50,000, the highest possible takaful/insurance could be RM1500
However, bankers may impose higher amounts of takaful to help borrowers get more favourable terms like lower interest rates and longer tenure. This gives banks a sense of security and reduces their risk exposure.
4. Early Settlement Fee
What it is:
A charge if you repay your loan earlier than the agreed term.
Islamic Banks:
They provide a rebate (Ibra’), which reduces the deferred profit, making early settlement more affordable.
5. Late Payment Charges
What it is:
A penalty for missing payments. Rates may vary between Islamic and conventional banks.
Islamic Banks:
They often have a set penalty limit.
Conventional Banks:
They may charge a percentage of the overdue amount.
Important Note: Beware of Scammers
- No Upfront Payment: Genuine banks will never ask for upfront payments. Any fees like stamp duty, Wakalah fees, or takaful charges are deducted directly from the loan amount.
- Scam Warning: If someone asks for upfront payments, it’s likely a scam. Be cautious and always deal directly with trusted banks or financial institutions.
What is the Interest Rate of Personal Loan to Reduce Commitments?
In Malaysia, personal loan interest rates vary based on factors such as the lender, loan amount, tenure, and the borrower’s creditworthiness. Here’s an overview:
1. Conventional Banks
Interest Rates:
Typically range from 4.99% to 18% per annum (p.a.)
Examples:
- Alliance Bank Personal Loan: Offers rates starting from 4.99% p.a. with loan amounts up to RM300,000 and tenures up to 7 years.
- Hong Leong Bank Personal Loan: Provides flat interest rates ranging from 9.00% to 12.50% p.a., depending on the approved facility amount and tenure.
- Maybank Personal Loan:
- Interest Rate: Starts from 6.5% per annum.
- Loan Amount: RM5,000 to RM100,000.
- Tenure: 2 to 6 years.
- Features: No processing fees, and faster approvals for Maybank account holders.
- RHB Personal Loan:
2. Islamic Banks
Profit Rates:
Generally start from 4.5% p.a.
Examples:
- Bank Islam Personal Loan: Offers Personal Financing-i with profit rates starting from 4.5% p.a. for tenures between 1 to 10 years.
- HSBC Amanah: Provides Personal Financing-i with profit rates starting from 4.88% p.a. for tenures over 2 years.
- Bank Rakyat Personal Loan:
- Profit Rate:
- Public sector: From 3.17% to 3.88% per annum, depending on tenure.
- Private sector: From 4.39% to 4.88% per annum, depending on tenure.
- Loan Amount: Up to RM400,000.
- Tenure: Up to 10 years.
- Features: Fixed profit rates and optional Takaful coverage.
- Profit Rate:
- MBSB Personal Financing-i:
- Profit Rate: Variable rates starting from SBR + 3.05% p.a. (equivalent to 6.05% p.a. effective rate) for the Mumtaz-i package.
- Loan Amount: Up to RM400,000.
- Tenure: Up to 10 years.
- Features: No guarantor required; optional Takaful coverage; no early settlement charges.
3. Licensed Financial Lenders
Interest Rates:
Can be higher, ranging from 12% to 18% p.a., due to the increased risk associated with unsecured lending.
Examples:
- Evo Credit: Offers personal loans with interest rates starting from 12% p.a.
- JCL i-Fund Personal Financing: Provides financing with profit rates starting from 18% p.a..
Factors Influencing Interest Rates
- Credit Score: A higher credit score can lead to more favourable rates.
- Income Level: Higher income may qualify for lower rates.
- Loan Amount and Tenure: Larger loan amounts and shorter tenures often attract lower rates.
Note:
Interest rates are subject to change and may vary based on individual financial profiles and prevailing market conditions. It’s advisable to compare different lenders and their terms to find the most suitable option for your financial needs.
What is the lowest interest rate for a personal loan in Malaysia?
In Malaysia, personal loan interest rates vary based on factors such as the lender, loan amount, tenure, and the borrower’s creditworthiness. As of November 2024, some of the lowest interest rates offered by banks include:
- Alliance Bank: Offers personal loans with interest rates starting from 4.99% per annum.
- CIMB Bank: Provides personal loans with interest rates as low as 4.38% per annum.
- Bank Islam: Offers Personal Financing-i with profit rates starting from 4.5% per annum.
Scenario: Consolidating Debts with a Personal Loan
You decide to apply for a personal loan of RM60,000 to consolidate all the debts above. The loan terms are:
- Tenure: 5 years (60 months)
- Loan Amount: RM60,000
- Interest Rate: 6% per annum (flat rate, conventional loan)
Calculation Details:
- Monthly Repayment Formula (Flat Rate):
- Monthly Payment=(Loan Amount+(Loan Amount×Interest Rate×Tenure))÷Number of Months
Step-by-Step Calculation:- Total interest = RM60,000 × 6% × 5 years = RM18,000
- Total repayment = RM60,000 + RM18,000 = RM78,000
- Monthly repayment = RM78,000 ÷ 60 months = RM1,300
Comparison: Before vs After Consolidation
| Category | Before Consolidation | After Consolidation |
| Number of Payments | 3 separate payments: – Credit Card A: RM900/month – Credit Card B: RM675/month – Personal Loan C: RM1,111/month | 1 single payment for the new loan. |
| Total Monthly Repayment | RM900 + RM675 + RM1,111 = RM2,686 | RM1,300 (for a new personal loan) |
| Interest Rate | Weighted average ~15% | 6% flat rate |
| Total Loan Tenure | Varies (e.g., credit cards are ongoing, loan C has 2 years left) | 5 years (fixed 60 months) |
| Total Outstanding Balance | RM60,000 | RM60,000 (consolidated into a single loan) |
| Interest Paid | Higher (credit cards at 15%-18% p.a.) | Lower (6% flat rate p.a.) |
| Management | 3 different accounts to track and pay | 1 single account to manage |
| Cash Flow Impact | Limited cash flow (higher monthly payments) | Frees up RM1,386 per month (RM2,686 – RM1,300) |
Key Benefits After Consolidation:
- Reduced Monthly Repayment: From RM2,686 to RM1,300 (savings of RM1,386/month).
- Simplified Payments: Instead of tracking three payments, you only manage one.
- Lower Interest Costs: Credit cards with 15%-18% interest are replaced by a 6% personal loan.
- Improved Cash Flow: The monthly savings can be used for other financial goals or expenses.
Important Considerations:
While consolidation reduces your monthly repayment, the total repayment tenure might be longer, resulting in more interest paid overall. Always ensure the new terms are affordable and aligned with your financial goals.
Bluebricks Service Features & Benefits
Here are the features and benefits of Bluebricks’ bank loan services, such as applying for a consolidation loan in Malaysia:
1. No Upfront Payment
We do not ask for any payment upfront. Beware of scammers who demand advance payment with false promises. We want you to be assured that we are genuinely here to help.
2. No Interest Charged for Settlement Fund
We help clear your bad debts to boost your credit score, then secure a consolidation loan to cover these debts and our fees.
We do not charge monthly or service interest. Throughout the whole process, we are there to support you through any delays (*not caused by you).
3. Only One Fee
We have just one straightforward fee—no hidden charges or surprise costs. Unlike complex billing systems, we maintain complete transparency about what you’re paying for.
4. Proper Agreement Signed Before Execution
Before submitting any documents to the bank, we ensure a formal agreement is signed with you, keeping you in control. We only receive payment after your loan is approved, guaranteeing we will not submit anything without your explicit consent.
5. Obtain Your Proposal Within 3–5 Days
We efficiently prepare a comprehensive proposal for you in just 3–5 days. This proposal will outline the best loan options suited to your specific situation. It’s worth the short wait to get a well-crafted plan that can significantly improve your financial outlook.
6. Comprehensive Proposal
We know that one size does not fit all. Unlike agencies that push a single, often high-interest loan, we provide you with at least two tailored options. This approach allows us to find the best fit for your unique financial situation and goals.
7. You Pay Us Afterward
Our fee is only due after your loan is successfully secured and disbursed. This payment structure ensures your peace of mind throughout the process, as you only compensate us once you have seen tangible results.
8. Provision of Emergency Funds* (case-to-case basis)
At Bluebricks, we understand that immediate financial obligations—such as external debts or medical expenses—often cannot wait for the standard bank loan approval process, which can take at least 30 days.
To bridge this gap, we offer an emergency fund from our own resources to promptly address these urgent needs. After confirming your eligibility for a bank personal loan and settling your bad credit or credit card debts, we can provide this emergency fund to alleviate your burdens without immediate financial strain. The amount advanced is subsequently recovered from the new personal loan you obtain, ensuring a seamless transition to financial stability.
Frequently Asked Questions (FAQs)
As far as any bank loan is concerned, commitment or monthly commitment refers to bank monthly commitment.
Bank monthly commitment refers to the total amount you are required to pay each month for all your financial obligations with banks. This includes payments for loans, credit cards, mortgages, and other financial facilities.
It is a critical factor that banks consider when assessing your eligibility for new loans or credit.
Example of Components of Monthly Commitment:
A. Loan Repayments:
• Personal loans, car loans, home loans, education loans, etc.
• The monthly instalment for each loan is part of your commitment.
B. Credit Card Obligations:
• Minimum monthly payments on your credit card balances.
• If you carry a balance, it will be calculated as part of your monthly commitments.
C. Overdrafts:
• If you have an overdraft facility, banks consider a portion of your approved limit as a commitment.
D. Other Financial Facilities:
• Monthly payments for hire purchase agreements or business loans, if applicable.
Importance of Monthly Commitment:
• Debt Service Ratio (DSR): Banks use your monthly commitment to calculate your DSR, which is your total debt obligations divided by your net income. A high DSR indicates you might struggle to repay new loans.
• Loan Eligibility: A lower monthly commitment improves your chances of qualifying for additional loans.
• Financial Planning: Understanding your monthly commitments helps you manage your finances better and avoid over-indebtedness.
If you’re unsure of your current commitments, you can request a Central Credit Reference Information System (CCRIS) report from Bank Negara Malaysia. This report shows all your active loans and credit facilities and their respective monthly obligations.
Here are examples of bank monthly commitments that are commonly taken into account when evaluating your financial obligations:
A. Personal Loans
• Monthly instalment for a personal loan taken from a bank.
• Example: If you have a loan of RM50,000 at a fixed rate for five years, your monthly payment might be RM1,000.
B. Car Loans (Hire Purchase)
• Monthly repayment for a vehicle loan.
• Example: If you financed a car worth RM70,000 for seven years, your monthly payment could be around RM900.
C. Home Loans (Mortgages)
• Monthly instalment for a house loan.
• Example: If you have a home loan of RM500,000 at a 4% interest rate for 25 years, your monthly payment might be RM2,600.
D. Credit Card Payments
• A minimum monthly payment required on outstanding credit card balances.
• Example: If you owe RM10,000 on a credit card with a minimum payment rate of 5%, your monthly commitment would be RM500.
Banks use these commitments to calculate your Debt Service Ratio (DSR) and determine your capacity to take on additional debt. If your monthly commitments are high compared to your income, it might limit your ability to qualify for new loans.
Yes, you can negotiate your personal loan, and doing so can lead to better terms and lower costs. Here’s how you can negotiate with your banker to optimise your loan:
A. Adjusting the Loan Amount
• What Happens by Default: Bankers often offer you the maximum loan amount based on your eligibility (e.g., income, credit score, and debt-to-income ratio).
• How to Negotiate:
o If you don’t need such a high loan amount, you can request to lower the loan amount.
o Benefit: A smaller loan amount means lower overall interest or profit charges. This can make your loan more affordable in the long run.
B. Opting for Longer Tenure
• Why It Helps: By opting for a longer repayment tenure, the monthly instalment becomes smaller and more manageable.
• Negotiation Tip:
o Request a longer tenure if your current financial commitments are high.
o Banks may be willing to offer this as it reduces the risk of default on their end.
o Important Consideration: A longer tenure means paying more interest overall, so ensure the benefits outweigh the costs.
C. Requesting a Lower Interest/Profit Rate
• Why Banks May Agree:
o A smaller loan amount or longer tenure reduces the risk for the bank, which might qualify you for a lower interest or profit rate.
o Banks may also be flexible with rates if you have a strong credit score or stable income.
• Negotiation Tip: Show proof of your financial stability, such as employment details, bank statements, or credit history, to request a rate reduction.
D. Leveraging Promotions and Offers
• Why It Matters: Banks often run promotions, such as lower interest rates, waived fees, or discounted charges, especially during festive seasons or special campaigns.
• Negotiation Tip:
o Ask the banker if any promotional offers apply to your loan.
o Highlight your eligibility and request specific benefits such as waived fees.
Key Takeaways:
Negotiating your personal loan can give you greater control over the loan amount, tenure, and costs. Always:
1. Know your financial needs and avoid taking more than required.
2. Highlight your strengths, such as a good credit score and stable income.
3. Compare offers from multiple banks and use them as leverage to secure better terms.
This proactive approach ensures you get the most affordable and flexible personal loan tailored to your needs.
Yes, paying off your personal loan early can reduce the interest, but here’s how it works:
For personal loans, which are typically flat interest rate loans, the total interest is calculated upfront for the entire loan tenure. This is similar to hire purchase or car loans.
If you decide to settle the loan early, you’ll need to make a bullet payment to pay off the total outstanding amount. After that, the bank will calculate a rebate on the remaining interest you don’t have to pay.
This is different from housing loans, which use reducing balance interest. With housing loans, you can pay extra at any time, and the interest is reduced immediately because it’s calculated daily.
Key Takeaways:
A. Personal Loans: Paying early involves clearing the full outstanding balance, and the bank rebates the unused interest.
B. Flat Interest: Interest is pre-calculated, so the savings depend on how early you settle the loan.
C. Housing Loans (Reducing Balance): You can make additional payments anytime to reduce the interest faster.
Understanding the difference can help you plan your repayment and maximise your savings.
