If you’re living in Malaysia and you’ve ever wondered about the types of personal loans available, you’re in the right place.
Whether you need to consolidate debt on a property owned for more than 10 years, secure a longer loan tenure from banks, settle credit card debts, or cover unexpected expenses, understanding your personal loan options is crucial.
So, let’s dive in and explore the types of personal loans in Malaysia and find the perfect fit for your financial goals!
What are the Types of Personal Loans in Malaysia?
When it comes to the types of personal loans in Malaysia, there are two primary categories you’ll encounter: secured and unsecured loans.
Let’s delve into the specifics of each type to help you make informed decisions when seeking financial assistance.
1. Secured Personal Loans
Secured loans are loans supported by some form of collateral, such as an asset or a guarantor.
In Malaysia, banks and financial institutions ask for collateral if the loan is for buying a specific asset or if the applicant’s credit score isn’t good enough for an unsecured loan.
Doing so reduces the lender’s risk, often resulting in more favourable interest rates for borrowers.
However, this also means that the asset being financed is placed under a lien by the lending institution until the loan is fully repaid.
In the unfortunate event of a borrower’s default, the bank or financial institution has the authority to sell the collateral to recover their funds.
Common examples of secured personal loans in Malaysia include hire purchase loans (often used for buying vehicles) and mortgage loans for real estate purchases.
2, Unsecured Personal Loans
Unlike secured personal loans, unsecured loans don’t require borrowers to provide collateral.
However, they do compel banks and financial institutions to examine a borrower’s credit history and financial track record more closely.
And while this means the borrowers’ assets aren’t directly at risk in case of non-payment, lenders can still pursue legal measures against defaulters.
In conclusion, while both types of personal loans have their advantages and challenges, understanding their intricacies can assist borrowers in choosing the option that aligns best with their financial situation.
How are Secured & Unsecured Personal Loans Different in Malaysia?
1. Interest Rate
- Secured Loans
Secured loans in Malaysia generally come with lower interest rates. This is because having collateral greatly reduces the risk for the financial institution.
Mortgage loans, for instance, often have interest rates of around 3% per annum because of this secured nature.
However, the specific interest rate may differ based on the type and value of the collateral in question.
- Unsecured Loans
On the other hand, unsecured loans have no collateral backing them. This absence makes them riskier for lenders, leading to generally higher interest rates.
Additionally, the interest rate for this type of personal loan can be influenced by several factors, including the applicant’s credit score, income, and other personal financial circumstances.
For instance, in Malaysia, unsecured personal loans have interest rates ranging from 3% to as high as 18%.
Credit cards, another type of unsecured credit, typically require users to pay a minimum of 5% of their outstanding balance monthly.
Plus, the interest rates for credit card balances can be steep, sometimes climbing to 18%.
2. Approved Loan Amount
- Secured Loans
Thanks to support from collateral, secured loans often allow borrowers to access larger loan amounts.
For instance, if one uses a property as collateral, a certain percentage of the property’s market value may be offered as the loan amount.
- Unsecured Loans
In contrast, unsecured loans might come with smaller borrowing limits because there’s no asset backing them.
The lender’s risk is higher, so they might be more conservative in terms of how much they’re willing to lend without any security.
3. Loan Tenure
- Secured Loans
Another advantage of secured loans is that they usually offer longer repayment periods.
Given that these loans can involve larger amounts, it makes sense that borrowers are given more time to repay them.
For example, housing loans in Malaysia can have tenures stretching up to 35 years.
- Unsecured Loans
Unsecured loans, with their typically smaller amounts, come with shorter repayment durations.
In Malaysia, these can range between five to ten years, based on the specific loan product and the financial institution’s policies.
Other Types of Personal Loans in Malaysia
When it comes to personal loans in Malaysia, there are more options than the common term loans most people are familiar with.
Among the many available choices, two distinct types of loans stand out — the Overdraft Facility and Syariah Compliant Loans.
1. Overdraft Facility
The Overdraft Facility (often referred to as ‘overdraft’) is a credit facility that allows individuals to withdraw more money than what is available in their bank account.
Instead of being a traditional loan with fixed monthly instalments, an overdraft is a flexible credit line that can be used as and when needed by the borrower.
2. Syariah Compliant Loans
Syariah Compliant Loans, also known as Islamic or Shariah Financing, is a form of personal financing based on Islamic principles, specifically the principles of the Shariah law.
Unlike conventional loans, Syariah Compliant Loans don’t operate on interest (or riba), which is prohibited in Islam. Instead, they operate based on profit-sharing, trade or lease principles.
How Bluebricks Can Help Navigate the Many Types of Personal Loans in Malaysia
We offer various solutions designed to assist individuals and businesses in their financial endeavours, including:
- Personal loan services
- SME loan rejected services
- Mortgage loan rejected services (for buying a new home, refinancing and cashback purposes)
- Collateral loan services
Trusted Personal Loan Consultancy Services
What sets BlueBricks apart is our dedication to personalised financial solutions.
Our experts are well-versed in the Malaysian financial landscape, and they use this knowledge to recommend the most suitable solution according to your individual circumstances.
These recommendations take into account several critical factors, such as:
- 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).
Types of Personal Loans – FAQs
In this comprehensive FAQ section, we look into the various types of personal loans available in Malaysia, addressing common concerns and providing clarity to help you make informed financial decisions.
The most common type of personal loan in Malaysia is the unsecured personal loan.
This type of personal loan does not require any collateral or guarantor and is based on the borrower’s creditworthiness and income.
Given the many types of personal loans in Malaysia, it’s crucial to evaluate your individual needs, compare interest rates, understand the loan tenure options, and read the terms and conditions carefully.
You can arrange a consultation with a financial advisor or utilise loan comparison tools to make an informed choice.
Before you choose the type of personal loan to apply for in Malaysia, here are several questions you can consider to make the right choice:
Understanding the purpose of your loan helps determine the loan amount and term.
Only borrow the amount you need and can afford to repay. This is because borrowing excessive amounts can lead to unnecessary interest payments.
Assess your monthly income and expenses to ensure you can comfortably make the required monthly repayments.