Do you have difficulties securing a personal loan for bad credit? Don’t worry; you’re not alone.
There are many others who find themselves in a similar situation, where traditional lenders turn them away due to their low credit scores.
But here’s the good news: numerous options are available to help people like you get the financial assistance you need.
In this article, we explore personal loans for bad credit, providing you with valuable insights and practical strategies to secure your desired funds and more.
What are Personal Loans for Bad Credit in Malaysia?
A personal loan for bad credit is designed for borrowers with low credit scores. These loans, while providing an avenue for emergency funding, typically come with several characteristics:
1. High-Interest Rates
Given the increased risk associated with lending to individuals with poor credit history, lenders mitigate this by applying high-interest rates to personal loans for those with bad credit.
This is a widespread practice across all types of high-risk loans, as the heightened interest enables the lender to recoup potential losses more swiftly should the borrower default.
2. Higher Fees
Besides the high-interest rates, these loans may also come with additional fees, including:
- Origination fees
- Late payment fees
- Prepayment fees
They serve as additional compensation to the lender for the risk they take on.
3. Shorter Repayment Terms
Unlike traditional loans that offer longer repayment periods, personal loans for bad credit often come with shorter terms.
By shortening the loan term, the lender reduces the time they are exposed to the risk of non-payment.
However, this means the borrower must make higher monthly payments to repay the loan within the specified period.
Despite its drawbacks, personal loans for bad credit serve as a lifeline for borrowers who find themselves in a challenging financial situation with limited options.
They offer individuals who urgently need funds an opportunity to cover unexpected expenses, consolidate debt, or pursue other financial goals.
How to Get a Personal Loan with Bad Credit in Malaysia
While obtaining a personal loan with bad credit may seem daunting, there are several effective strategies to explore:
1. Assess Your Credit Situation
Before you apply for a personal loan, it’s crucial to first understand your credit standing.
Moreover, understanding your credit report also gives insight into the cause of your poor credit and how you can address it.
2. Improve Your Credit Score
One effective, albeit slow, method to get a personal loan with bad credit is to consistently demonstrate responsible financial behaviour.
Commit to paying your monthly bills and credit obligations on time for an extended period, such as 12 months.
By doing so, you show lenders that you are becoming more reliable and trustworthy while at the same time gradually boosting your credit score.
3. Tap into Property Equity
If you’re a homeowner with a fully paid-off property or have owned your home for over a decade, you have the additional option of refinancing your home.
Refinancing can help you obtain a lump sum of cash that can be used to clear off all your existing bad credit facilities and consolidate your debts into your home loan.
However, if you don’t own a house and are grappling with bad credit, you could consider engaging in a cash-back property deal.
In this arrangement, you purchase a property, and the seller refunds a part of the purchase price, which you can then use to settle your bad credit debts.
4. Explore Alternative Lenders
If traditional banks aren’t willing to extend you a personal loan due to your low credit score, consider alternative lenders such as:
- Online lenders
- Peer-to-peer lending platforms
- Retail banking
These institutions have more flexible lending criteria and are more willing to work with borrowers with low credit scores.
5. Have A Detailed Repayment Plan
When approaching lenders for a personal loan for bad credit, you must demonstrate that you have a plan for repaying the loan.
For example, create a detailed budget showcasing your income, expenses, and how you intend to allocate funds for loan repayment.
You could also highlight any positive changes in your financial situation that may increase your ability to meet your financial obligations.
How to Improve Your Credit Score
Improving your credit score not only enhances your chances of securing a personal loan but also opens up doors to better financial opportunities. Here’s what you can do:
1. Pay Bills on Time
By making timely payments on your bank instalments and credit card bills, you demonstrate responsible credit behaviour and show lenders that you can manage your debts effectively.
2. Reduce Your Credit Utilisation
Credit utilisation refers to the ratio of your current total debt to your total available credit.
Having a high credit utilisation is seen as a sign that you’re overly reliant on credit and can negatively affect your score. Generally, a credit utilisation of 30% and below is recommended.
As a result, you should make regular payments to lower your credit utilisation and show lenders you can manage and repay your debts.
You can also avoid maxing out your credit cards to keep your balances low in relation to your credit limit.
3. Avoid Opening New Accounts Unnecessarily
Opening multiple credit accounts within a brief timeframe can negatively impact your credit score.
Instead, focus on finding lenders or credit cards that work with individuals who have low credit scores. This can increase your chances of approval and avoid unnecessary hard inquiries.
4. Maintain Older Accounts
What’s more, if you have older credit accounts in good standing, keep them open and active. They positively contribute to your credit score and demonstrate your ability to manage credit responsibly.
5. Stay Vigilant With New Credit Applications
Lastly, be mindful when applying for online loans or participating in digital personal loan platforms such as Touch ‘n Go’s GOpinjam.
Applying for multiple loans or credit programmes all at once can harm your credit score.
This is because whenever you submit a loan application, the lender will perform a hard inquiry on your credit report, which can result in a drop in your credit score.
By implementing these strategies, you can gradually enhance your credit score, making yourself more appealing to potential lenders.
However, remember that building or repairing credit takes time and is most effective when done consistently over a long period.
How Bluebricks Can Help with Personal Loan for Bad Credit
Bluebricks is a licensed loan agency in Malaysia that can provide valuable support in your personal loan application.
We also provide quick cash loan solutions to individuals in urgent need of funds. Our streamlined process ensures prompt response and efficient service.
Personal Loan Rejected Services
At Bluebricks, our experts are committed to helping you through your loan application process with comprehensive loan services designed to assist you in securing the loans you need.
We also specialise in helping clients with low credit scores, including those enrolled in AKPK and individuals who face challenges in providing traditional income verification to banks, like freelancers and gig economy workers.
As long as you have a basic income of at least RM5,000, we can help you secure approval for a personal loan.
However, it’s important to note that we are unable to assist in cases involving legal disputes or bankruptcy.
Personal Loan for Bad Credit – FAQs
In this section, we have compiled a list of frequently asked questions regarding personal loans for bad credit.
Our goal is to provide you with valuable insights and practical solutions to navigate the challenges you may face.
Taking out a personal loan for bad credit can impact your credit score in both beneficial and detrimental ways.
Initially, applying for the loan may result in a slight drop in your credit score due to the hard inquiry made by the lender.
However, making timely repayments and managing the loan responsibly will improve your credit score over time and show lenders that you’re becoming more creditworthy.
Yes, taking out a personal loan for bad credit to pay off your debt is possible, but there are some important factors to consider.
Personal loans for individuals with bad credit typically have higher interest rates. Before taking out such a loan, it would be wise to compare the interest rates with the current rates of your existing debts.
Some lenders charge origination fees, which could add to the cost of your loan. Make sure to understand all the associated fees and factor them into your calculations when comparing different loan options.
The term or length of the loan can also affect how much you end up paying. A longer term might mean smaller monthly payments, but the total interest paid over the life of the loan could be higher.
Lenders often view credit history as a reflection of a borrower’s repayment capability.
If you have bad credit, it indicates that you have a higher likelihood of payment defaults, which makes lenders reluctant to approve your loan application.