A personal loan is a type of loan that is issued by banks and financial institutions. It is the perfect solution when you are in need of extra funds to finance personal expenses like your home renovations, holidays, education costs, business, medical bills or anything else. Personal loans give you the financial flexibility to use the funds as per your convenience and needs. As its name suggest, a personal loan is a type of unsecured loan and helps to meet your current financial needs. You don't usually need to pledge any security or collateral to apply for a personal loan.
Personal loans work in the same way any other bank loan works. You apply for a specific loan amount from the bank to pay for things you need or want. If your loan application is approved, you will receive the lump sum amount that you applied for and then pay the bank back in regular monthly installments back. The monthly repayment amount includes the principal amount plus fees and interest. Personal loans typically have shorter repayment periods than other types of loans, ranging from 6 months to 10 years.
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These loans can be disbursed to your account from as quick as 24 hours to 2-3 working days. Suitable if you are in urgent need of financing and cash, or need to pay for an emergency.
You can use it to finance the down payment on your home or even to finance all the fringe costs that come with buying a home including stamping duties, processing fees, property tax, maintenance fees and to repay the monthly instalments on your mortgage.
A personal loan for your wedding day expenses, which would ideally cover all associated costs such as decoration, venues, food catering, and more!
You can use this to put money down for downpayment, to service your vehicle, and any related vehicle expenses you have. Perfect for your next car or motorcycle.
Instalment loans are the usual type of loan. This loan type is one you pay back on regular intervals with equal payments over a period of time called your loan tenure.
The payments you make are calculated based on the amount of money that is lent to you, the interest, and how long your tenure is. Once you’ve made the final payment, the loan is considered repaid and that’s the end of it. If you need to borrow more money, you have to
apply for another loan.
A revolving loan works like a line of credit. It’s a type of loan wherein you are given your loan amount, but instead of receiving it in full, you can withdraw or borrow small amounts whenever you need, up to the full loan amount. In a revolving loan, you only repay the balance you borrowed, with an interest rate according to the amount you took out and not the full loan. As you repay the balance, you have access to that amount again, and
you can borrow more money.
In this regard, it works like a credit card wherein you have a credit limit that you can use small amounts from, and repay the balance monthly. Revolving loans allows you to have access to flexible credit, and access to that credit whenever you need it. You won’t have to keep applying for loans every time you have to.
In contrast, an overdraft is an extension of an account. This type of loan allows the borrower to continue taking out money from his account even if the credit limit has been reached, or if the amount borrowed has exceeded the credit limit.
In essence, it’s a loan that isn’t subject to the same regulations and credit checks as instalment or revolving loans. Overdrafts can still incur expensive bank charges in the form of higher
interest rates than the interest rate agreed on in your loan. As well, it is not advisable to go into or avail of an overdraft. Taking money from your overdraft means that you do not have control over your spending habits, since you are going over your credit limit and tapping into resources beyond your capabilities.
A personal loan is a loan taken by an individual to fund any personal expenses. These include to fund a wedding, to make renovations to the home or even for a vacation. But its important to take note of the two common features of a personal loan.
There are many factors that will influence your eligibility for a personal loan. Generally if all other things being equal, the younger you are, the higher your probability of getting your loans approved. Here are some of the key factors:
To qualify for a personal loan in Malaysia, you need to be over 21 years old, but not older than 60. For some loans the requirements are even tighter, requiring people to be under 55 or 50.
In order to be eligible for a personal loan, you need a level of income that ensures the bank that you will be capable of services the loan requirements. Most personal loans in Malaysia require you to have an income of at least RM 1,000, although RM 2,000 – to RM 3,000 is more common. Of course, the higher your income, the better. If you do have an exceptionally high income, you might qualify for a select few low interest personal loans, only available to top earners.
In order to qualify for a personal loan, you will need to be a Malaysia citizen or have Permanent Resident (PR) status.
Before your loan application is approved, a thorough credit check is done to make sure that you are able to repay your loan. A poor credit history could lead to higher interest rates or loan rejection. You should always maintain a good credit history.
If you have ever applied for a car loan, home or personal loan, you will probably have heard the phrase ‘debt service ratio’ (DSR) from the bank’s loan officers whilst they explain to you how the loan works. The debt service ratio is one of the key factors that the bank will evaluate while performing their due diligence during the loan approval process.The DSR is calculated based on the total of all your monthly debt obligations – often called recurring debt / commitment, which includes your total loan on mortgage, car loans, personal loans, your minimum monthly payments on any credit card debts, your other loans, together with the monthly commitment for the current application, divided by your net income – after the deduction of income tax / KWSP/ SOSCO (where applicable).
Depending on your employment status, you may be ineligible or will have additional requirements in order to apply for a personal loan. For example, fresh graduates will need to have at least 6 months’ pay slip to qualify for a personal loan, if not some banks will require a guarantor.
Before you start on the loan process, confirm what type of loan package you need. Personal loans are generally unsecured, meaning they use your credit as a gauge rather than an asset like your house or car. If you need a larger loan or need an open source of credit, you may want to consider other financing options.
The amount you borrow should be based on the expense you’re trying to cover and your income. It’s better to determine how much you can spend each month and borrow less than your maximum so you can avoid stretching yourself too thin. Taking out a loan that’s too small can leave you with remaining financial needs, but if you take out a loan that’s too large, you’ll be stuck paying interest on a larger amount than necessary. This is why you should carefully calculate the debt you can handle and the amount of your purchase before you apply.
Your credit will determine how much you qualify to borrow. Most lenders will require good credit scores and a multi-year history before they offer you an unsecured loan, but there are personal loans for people with bad credit. Before you apply, check your credit score so you know what type of loan you qualify for.
Don’t hesitate to shop around and compare lenders. Check interest rates, fees, loan terms and payment options before signing any documents. You can check out our comparison tables to find a loan that’s right for you. Need more info? Our guide to personal loans will help you make an informed decision. You may also want to visit your local bank or credit union. The processing times may be higher than online loans, but you may receive a more prime interest rate.
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