A personal loan is a line of credit worth tapping into to receive one-time payments for projects like debt consolidation and large purchases requiring personal financing. However, financial institutions have different loan approval processes and loan tenures for personal loans. Moreover, your monthly income and credit history also determine whether you can apply for a personal loan. Second, financial institutions offer different personal loan types, including secured and unsecured loans. So, how do you choose the ideal personal loan to suit your financing needs, and how does the personal loan interest rate affect your monthly income? Keep reading to learn more, including an overview of the best personal loan Malaysia has to offer. Best Personal Loans in Malaysia Malaysia has plenty of banks and financial institutions offering secured and unsecured personal loans. As stated above, different banks and financial institutions have special terms and conditions regarding the personal loan approval process. Therefore, tools like third-party online platforms that compare monthly repayment rates, loan amount, profit rate, and interest rates, among other terms and conditions, are available. Moreover, Some banks have online banking tools, like a personal loan calculator, that uses information like credit history and credit score to determine the maximum loan amount, repayment tenure, and monthly repayment amounts. As a Malaysian citizen or permanent resident, you can choose between conventional loans and Islamic financing. Below is an overview of Malaysia’s top ten personal loans based on the interest rate (profit rate for Islamic personal financing), loan tenure/ loan repayment period, monthly installments, approval times, maximum and minimum loan amount, and eligibility. Alliance Bank CashFirst Personal Loan 4.99% p.a. loan interest Up to 1 day business day approval RM5.000-RM150,000 personal loan RM 3,000 minimum monthly salary Should be self-employed, salaried, or commission earner For Malaysian citizens or residents 21-60 years age requirement No processing charges 1% p.a. penalty on the outstanding amount for late payment Bank Rakyat Personal Financing 4.64%-8.47% p.a interest on loan Up to 3 days of approval (business days) RM10,000-RM200000 loan amount 1- 10 year financing tenure RM 1,000 monthly salary 18-60 years age requirement Optional linked bank account 1% fee on late payment applicable on the outgoing amount No processing fee AEON i-Cash Personal Financing 7.92% p.a. profit rate Rm 1,000 – rm 100,000 Up to 1-day approval Up to 7 years financing period For self-employed, salaried, and salary by cash applicants RM 1500 minimum monthly salary 2-4% of the amount processing fee 18-60 years age requirement Zero termination fee RM 18- RM 40 late payment fee MBSB Afdhal-i RM 3,000-RM 400,000 Quick approval of up to 1 business day 22-10 year financing tenure 3.35% p.a. flat profit rate RM 2,000 Minimum monthly salary No financing processing fee No penalties on late payment Guarantor not required Maybank Personal Loan 0.54% fixed monthly interest rate Up to 48 hrs fast approval RM 5,000- RM 100, 000 loan amount 6 years max tenure RM 3,500 Minimum monthly salary No funds processing fee 1% penalty fee of the outstanding amount for late payments Should be 21-60 years old CIMB Bank Cash Plus Personal Loan 6.88%-14.88% p.a. fixed interest rate Up to 1-day approval RM 2,000- RM 100,000 loan amount 2-5 year loan tenure Should be between 21 and 58 years old RM 2,000 minimum salary requirement Not required to open linked bank No guarantor required Zero processing fees 1% interest p.a. of outstanding loan late payment penalty Bank Islam Personal Loan 4.5% p.a. interest rate Up to 5 business days approval RM 10,00- RM 150,000 loan amount RM 3,500 in monthly salary Max financing tenure 10 years Should be 16-60 years old Optional linked bank accounts Free processing 1% late payment penalty on the outstanding loan Hong Leong Islamic Personal Financing-i Up to 72 hrs approval RM 5,000- RM 150,000 loan amount 7 years Max financing tenure RM 2,000 minimum monthly salary Should be 21-60 years old RM 15 processing charges 1 % penalty on the outstanding loan on late payment What is meant by a Personal Loan? A personal loan is a line of credit or financing amount extended by a bank, credit union, or other lending institutions to a borrower as a lump sum or principal loan amount. The secured loan is payable in monthly installments or a fixed monthly repayable amount, which includes interest until your loan tenure expires. Personal loans are vital because everyone needs to borrow money at some point. The total financing amount from a credit union lending money funds individual projects like education, house renovation, home loans, asset acquisition like car loans, or a fixed deposit for a business venture. Moreover, you can use the approved loan amount from a personal loan application for debt consolidation. A debt consolidation loan is a type of personal loan you use to pay off existing debt to avoid multiple expensive interest payments that will disrupt your ability to fulfill monthly commitments. Moreover, a debt consolidation personal loan typically has lower monthly repayments, which are cheaper in the long run, are unsecured and feature a flat interest rate. Personal loans feature different terms and conditions that can make them affordable or expensive in the long run. Such terms include the interest rate (flat-rate interest VS effective interest rate), the monthly payment amount against your monthly income, and whether you prefer a conventional loan over Islamic financing. Moreover, you can apply for multiple loans simultaneously if you have a good payment track record, although this may taint your debt service ratio (DSR). Nonetheless, below is an overview of the personal loan acquisition process, beginning with how to apply for a personal loan. How does it work? Personal loans have multiple advantages over other borrowing tools, including credit cards. Such benefits include a lump sum payment that allows more flexibility in spending the borrowed money, lower interest rates, and a shorter approval window. Below are steps included in the personal loan borrowing process. As a Malaysian citizen, you can access different types of personal loans. Therefore, consider the loan type that will best meet your financing needs and is worth a monthly commitment before you apply for a personal loan. A proper plan empowers you to decide on an adequate loan amount to include in your application and make good use of the borrowed money. Moreover, you can choose between secured loans with a fixed deposit as collateral or an unsecured loan requiring no collateral. Besides secured and unsecured loans, Interest rate types vary, with some lenders utilizing a flat interest rate while others use effective interest rates. The difference between the two interest rates is that a flat interest rate calculates monthly repayments against the initial financing amount. In contrast, an effective interest rate calculates the monthly installment against the outstanding balance after deducting previous monthly payments. You can use a personal loan calculator to determine which interest rate calculation method achieves a convenient monthly repayment amount. Third, as stated above, most secured and unsecured loans feature requisite fees, including a processing fee for the personal loan and an early settlement fee. However, some banks have a lifetime waiver on personal loan processing fees. Besides the credit institutions’ credit terms, your credit history also influences your loan application process. Most institutions require a high credit score and a good credit history (including debt service ratio) for personal loan applicants. A higher credit score means lower interest rates and monthly repayments because you are a low-risk investment. On the other hand, a poor credit score translates to high-interest rates and a high monthly installment figure or may block you from securing a loan altogether. Thorough research on loan terms is necessary to predict the success of your loan application. Consider using a personal loan calculator as a research tool to establish the total financing amount, interest rates, and monthly payments. You can apply for a personal loan by visiting the lending institution in person or via online portals. Either way, have your details and documentation, including your identification, proof of income, and bank statements, with you. However, the total financing amount included in your load application could be less than what the lending institution offers, so prepare for any outcome. List of Different Kinds of Personal Loans in Malaysia Although personal loans are flexible, you cannot use them for everything. Below are the top categories for personal loans available to Malaysian citizens and qualifying residents.Home Loan Home Loan A home loan is a personal loan type or borrowing tool that allows one to secure financing to purchase property, including a house or a flat. Malaysian home loans are secured loans and use the property in question as collateral. Therefore, you will likely lose the property should you default on a monthly repayment for three consecutive months. Moreover, home loans have the highest personal loan interest rates of all personal loans. Nonetheless, they are a godsend for every Malaysian citizen who cannot afford to buy a home without using credit. Moreover, the monthly installment on the loan amount for a home loan has the longest tenure of all personal loans and clearing the loan within the first 3-5 years ears you an early settlement fee penalty. According to one report, permanent residents in Malaysia can purchase a home via the Malaysia My Second Home (MM2H) visa program. However, home loans under this program have a significantly higher interest rate. Home Improvement Loan A home improvement loan is a renovation loan accessible to homeowners in Malaysia. A renovation project’s primary purpose is to improve a home’s value through practical benefits, like more space. Although the loan is a type of personal loan, it is less flexible than other personal loans because you must invest the money in renovations. However, renovation loans have lower flat-rate interest than home loans; some banks even include a flexible payment plan and exclude maintenance fees on home improvement loans. Moreover, a home improvement loan is unsecured, requiring no collateral, although proof of cost, like a bank statement and contractor invoices, is necessary. Some banks offer homeowners a renovation loan alongside the home loan as a loan consolidation strategy to help them manage the outstanding balance. Moreover, you can use a personal loan for home improvement on an investment property. Business Loan A business loan is a loan amount that allows small and medium business enterprises to raise working capital for their businesses. Working capital is the funding necessary to meet a business’s daily expenses. Parties seeking a business loan can apply to a commercial or industrial bank. Such institutions require ample documentation from the entity, including business identity and incorporation documents. Moreover, the company must have been operational for at least two years. The loan amount due to an SME in Malaysia depends on the company size, business classification (proprietorship, partnership, LLP), and asset criteria. Moreover, the interest rate dictating the monthly installment must match the business’ risk profile. Business loans are primarily secured loans, although some lenders currently offer unsecured loans. Car Loan A car loan is a credit line used exclusively to purchase an automobile, new or used. Such credit lines are secured loans because the car you purchase is collateral securing the lending institution’s spending. Therefore, defaulting on your monthly repayment or monthly installment for the vehicle results in repossession. Car financiers in Malaysia have varying margins of finance rates for vehicle loans. They give you a loan of up to 90% of the car’s value while you finance the remaining portion. Therefore, select a car loan plan that will not result in an overly high monthly installment. Debt Consolidation Loan A debt consolidation loan helps you track your credit card’s outstanding balance and other personal debts, including student loans. Its primary advantages include lowering your debt service ratio, reducing your monthly commitments, and lowering your interest rate/ profit rate, leading to a cheaper monthly installment. However, can a debt consolidation personal loan affect your credit score? Unfortunately, the answer is yes. Credit unions and other lenders factor in your DSR and bank statement when evaluating your loan eligibility. Having multiple loans with outstanding debt in your credit history while applying for a new loan can lower your credit score, causing the lending institution to flag your application as high risk and charge you a higher interest rate. High-interest rates often translate to high monthly installments. Therefore, evaluate the debt consolidation loan terms and use a personal loan calculator beforehand to ensure that the loan will not lower your credit score. Government Loan Government personal loans are available exclusively to any Malaysian citizen working in the state. The government loans include the LPPSA financing plan allowing civil servants access seven different home financing plans. Moreover, government loans offer equally competitive interest rates, flexible payments, and a high borrowing amount. However, the most significant advantage civil servants get from government personal loans is that the minimum monthly income for applicants is as low as RM800 and the loans feature fixed interest rates. Although government personal loans are exclusively available to civil servants, some banks extend them to statutory body staff like the police and armed forces members. Islamic Financing Loan Although Islamic banks are in the business of selling credit tools to Malaysians, they operate using slightly different rules from institutions offering conventional loans. Islam personal financing institutions follow Shariah lending laws that exclude the following lending practices: Riba: Charging a for-profit interest rate on the extended loan, leading to a high monthly loan installment. Instead, Islamic financing institutions charge a profit rate on loans. A profit rate differs from conventional interest rates because Islamic financing institutions profit from selling assets rather than charging interest from loans. Haram: Islamic financing does not extend credit to haram (not permitted) businesses like alcohol, tobacco, and gambling. Zulm: Exploitation contravenes Sharia law. Hence Islamic banks do not lend to entities upholding exploitative/ unfair practices. Islamic banks have affordable profit rates with a reasonable monthly installment that will not compromise your monthly income, as this counts as Zulm. Besides a friendly profit rate, Islam financing institutions have lower late payment fees and no early settlement fees. Moreover, some Islam banking institutions issue rebates for early payments rather than the early settlement fee penalty. Therefore, you can access loans ranging from RM1000 to RM250000 in an Islam personal financing institution at a low monthly rate. Any Malaysian citizen, Muslim or non-muslim, can apply for a personal loan and receive loan approval in an Islam financing bank, provided they meet prerequisite requirements. Fast Approval Loan Instant approval loans are helpful in situations requiring emergency funds, like a health emergency. Essentially, loan approval in Malaysia takes 3-5 working days. However, m some lending institutions can process and approve a loan application within 24 hours, provided you fill out and submit the form online. Is there collateral needed to get a personal loan? Most personal loans in Malaysian financial institutions are unsecured, meaning you do not have to present collateral to secure the loan. However, lending institutions prioritize candidates with good credit history, a high credit score, and reasonable DSR when such candidates borrow money. Nonetheless, the item of purchase may function as collateral for some long-term personal financial loans like home and car loans. Different Kinds of Personal Loans in Malaysia As earlier stated, lending institutions apply different loan terms when lending money to Malaysian citizens and residents. Below are loan terms doubling as personal loan types that every Malaysian citizen should consider when shopping for a personal loan with affordable monthly repayments. Secured Vs. Unsecured Loan Secured loans require that the borrower presents an asset like a vehicle or property to the bank as collateral that the bank can leverage in case they default from monthly payments for a given period. On the other hand, unsecured loans do not require collateral from the borrower to the lender. However, secured loans facilitate access to a higher loan amount and longer credit tenure. Islamic Vs. Conventional Financing A Malaysian citizen seeking a personal loan can apply for a loan in an institution adhering to Islamic Sharia law or a conventional bank. Sharia-compliant Islam financing institutions utilize halal equity indices, including profit rates, to manage a fair lender-receive relationship. Moreover, Sharia-compliant institutions do not charge an early settlement fee. On the other hand, conventional banks adhere to the standard modern portfolio lending and charge interest rates on loans or the outstanding balance rather than a profit rate. Benefits of Personal Loan 1. Lump Sum Amount Unlike other credit tools, like credit cards, personal loans give you access to a lump sum amount of money that you can use to fund most financial needs, from loan consolidation to business ventures. The versatility and flexibility associated with personal loans make them ideal credit lines for almost any Malaysian citizen. 2. Collateral is Unnecessary Most lending institutions offer unsecured personal loans, despite offering more considerable amounts of money than most credit lines. 3. Low-Interest rates Personal loans have lower interest rates than credit cards and long-term loans like mortgages. Moreover, Islamic lending institutions’ profit rate is more competitive than most personal loan interest rates. 6 Important Factors Banks Consider in Personal Loan Application Credit Score A credit score is a three-digit figure denoting an individual’s creditworthiness based on borrowing and repayment patterns. A good credit score is above 700, while any figure below 460 is poor. Consider using online credit score tools to evaluate your creditworthiness before applying for a personal loan. Age You must be at least 21 years old to apply for a personal loan in Malaysia, but not older than 60 years. Employment Status Most personal loans require that the applicant has a steady income as an employee in self-employment. Moreover, some institutions classify loans by employment as government and private sector loans. Nonetheless, some lenders offer personal loans to unemployed individuals, including fresh graduates. Income RM2000 is the minimum monthly income qualifying a Malaysian citizen for a personal loan, although civil servants can receive government personal loans, despite earning an RM800 monthly income. Debt Service Ratio A debt service ratio calculation helps a lending institution to calculate your ability to service debts from your monthly income. It entails dividing your monthly debt by your monthly income; a healthy GDS should not exceed 30%. Residency Status A Malaysian citizen has access to more financial tools than a permanent resident in the country. However, some lending institutions lend personal loans to Malaysian permanent residents at slightly higher rates. How to compare personal loans online? Initially, the primary method for comparing personal loans online was to request quotes from various lenders. However, online personal loan calculators make comparison easier. Moreover, some third-party websites feature loan terms by different lenders, allowing you to compare the terms. Personal Loan: Apply in 3 Easy Steps Figure out the amount you need Establish the principal amount you need to borrow to fulfill your project. Credit lenders approve a slightly smaller loan, depending on your credit score, so prepare for this eventuality. Check your credit score Use a credit score tool to establish your credit score before filing a personal loan application. Choose the best loan Use a personal loan calculator to compare loan terms and choose the personal loan with the best interest rates, minimum monthly repayment, and maximum principal amount. Fees and Extra Charges You Have to Incur for a Personal Loan Malaysia Besides interest rates and monthly payments, you may incur the following fees during your personal loan application process. Processing fees Early settlement fee Late payment fee Checklist of Documents Mandatory for Personal Loan Application Loan application form identification Tax forms Proof of employment Bank statement Passport size photo The documents may vary depending on your citizenship and employment type. Personal Loan Calculator – Calculate Your Monthly EMI Calculating your equated monthly installment (EMI) is straightforward using a web-based EMI calculator. Therefore, search for an EMI calculator online, enter the required fields, and press the action button to view your EMI. Wrapping up: How to pick the best personal loan? Selecting the best personal loan with ideal terms to meet your monthly obligations requires an in-depth knowledge of the terms. So, follow the guide above and recommended tools to identify a personal loan with the best terms. Reference Links: https://www.comparehero.my/personal-loan https://ringgitplus.com/en/personal-loan/ https://www.malaysia.gov.my/portal/content/30824 https://www.investopedia.com/articles/07/islamic_investing.asp