First Thing First, What Is a Personal Loan?
A personal loan, also known as a consumer loan is money borrowed by individuals from a bank, credit union or licensed money lender that they pay back in fixed monthly payments, or instalments, typically over two to seven years.
There is an increasing number of Malaysians taking personal loans, in fact statistics have shown that in 2019, 45.7% of Malaysian households are in debt from taking loans for vehicle purchases, personal loans, credit cards and others.
The most common personal loans in Malaysia are secured and unsecured loans, and Islamic and conventional loans.
There are plenty of financial institutions that offer personal loans, here are four crucial aspects you need to consider before making a decision to apply.
Should You Get a Personal Loan?
You might consider taking out a personal loan if you don’t have and couldn’t qualify for a low-interest credit card and a personal loan is your least expensive borrowing option.
Personal loan is also a good option for you if you only need to borrow for a fairly short and well-defined period of time as it’s typically locked in shorter terms, like 12 to 60 months.
For What Purposes Can It Be Used?
It can be used for any personal financial needs such as debt consolidation, home renovation, marriage-related expenses, purchasing latest electronic gadgets or home appliances, meeting unexpected medical expenses or any other emergencies.
Personal loans are also useful when it comes to investing in business, fixing your car, down payment of new house, etc.
Who Can Apply for a Personal Loan?
The general criteria vary from lender to lender, but to avail of a personal loan include your age, occupation, income, your credit history capacity to repay the loan and your credit history.
For borrowers with issues on their credit history, the interest rate imposed on a personal loan might be higher than the regular borrowers with good credit score. A higher interest rate could mean large monthly payments, which can be difficult to afford and cause you to make late payments or entirely miss payments. This can leave a negative impact on your credit score and will remain on your credit file for seven years.
From Which Financial Institution Should One Borrow?
It is advisable to compare the offers of various financial institutions before you settle on one. Some key factors to consider when deciding on a loan provider include interest rates, loan tenure, processing fees, etc. In general, banks require high levels of creditworthiness to be eligible for loans as they have to adhere to stricter guidelines. Whereas licensed money lenders are more forgiving and flexible when it comes to performing credit score check and are more open to providing loans for borrowers who are unable to meet the bank’s strict criteria.
What Are the Interest Rates Like for Personal Loans?
Being unsecured loans, personal loans have a higher interest rate than those on secured ‘home and car’ loans. However, the rate applicable varies from borrower to borrower based on several factors, including credit score, income level, loan amount and tenure, previous relationship (savings account, loans or credit cards) with the lender, etc.
A personal loan can be a smart financial move to help you reach your financial goals or a necessary step to address emergency financial situations, but if you want to make a smarter decision when taking out a personal loan, keep in mind all the key points mentioned above!
Avex Venture Capital is a licensed money lender in Malaysia under the purview of Ministry of Housing and Local Government, and governed through Money Lenders Act 1951 and Money Lenders Act (Amended) 2003. We provide a variety of personal and business loans that are tailored to meet your specific needs.
Apply for funding and find out if you qualify today.