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Step-by-Step: How to Apply for a Personal Loan in Malaysia


A personal loan is an efficient way to supplement your monthly income and meet your financial goals. Moreover, most banks’ loan application process is straightforward, as you can borrow money and receive the borrowed money in your current account within 24 hours. Even so, personal loan application requirements determine whether the bank approves your loan.

Personal loans can be secured or unsecured. Also, different personal loan types have different loan terms, including the profit rate, interest rate, principal loan amount, and loan tenure.

Nonetheless, understanding the personal loan application process is crucial to improving your eligibility and securing personal financing with favourable terms. So, follow this guide for an in-depth understanding of the personal loan application process to secure the best personal loan regardless of whether you’re self-employed or are on a monthly salary.

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Section 1: Understanding Personal Loans

The personal loan borrowing process begins with an application. However, the application process may vary slightly across banks.

It often comes down to filling out an application form from a bank branch or its online banking platform. Also, the application entails submitting prerequisite documents like a bank statement for your savings account, payment receipts showing your monthly gross income (depending on your employment status), and business registration documents (for a variable income earner or self-employed applicant).

Upon receipt, the bank examines your personal loan application to establish whether your monthly income is sufficient to meet your monthly repayment and other commitments. A monthly commitment in this context is any other debt included in a credit report, such as car loans, credit card debt, or home loans.

Lenders primarily evaluate an applicant’s creditworthiness based on credit history or fulfilling monthly repayments by the overdue date. Besides the payment track record, they consider your debt service ratio (DSR) or income to monthly commitments ratio. A high DSR is a high-risk borrower indicator and often translates to a high-interest rate or profit rate, regardless of your credit history and financial background.

Banks use the applicant’s credit history to establish interest rates (profit rate for Islamic financing) and the total loan amount. Later in this segment, you can read about how banks calculate the personal loan interest rate.

Once a lender approves your personal loan, they disburse the funds into your current or savings account. Licensed lenders typically deduct loan processing fees from the disbursed amount rather than asking applicants to pay a loan processing fee beforehand; any lender asking for fees ahead is most likely a scammer.

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The next step after loan disbursement is paying your equated monthly instalments (EMI). Lenders derive the equated monthly instalments by dividing the sum of your loan amount and the total interest rate by your repayment tenure or total loan payment period.

However, you can clear the personal loan faster by making a lump sum payment rather than monthly instalments. Even so, most banks institute a lock-in period, charging an early payment fee as a preset percentage of the unpaid balances. Therefore, the early payment strategy works for a personal loan without a lock-in period.

The loan tenure for personal loans ranges from six months to ten years, depending on the lender and the borrower’s monthly commitments. When deciding on a personal loan tenure, consider monthly income, loan amount, interest rate, and monthly obligations.

A short loan tenure helps lessen the interest burden on the loan amount. However, it may strain your finances, especially if you have other monthly commitments like car and home loans. On the other hand, an extended loan tenure facilitates more manageable monthly payments but incurs higher interest payments in the long run. Nonetheless, as a personal loan borrower, you aim to make timely payments and avoid penalties.

  • Loan Classifications

Secured Loan Vs. Unsecured Loan: What’s The Difference?

Secured loans are personal loans backed by an asset as collateral or a security pledge. A secured loan limits the risk of default for the lender because they can repossess the secured asset and recoup their lending investment. Besides a collateral asset, a guarantor or individual who promises to assume responsibility for a loan default can secure the loan.

The advantages of secured loans include a low interest rate because they present a lower risk to the lender. Second, secured loans increase a borrower’s loan eligibility because the collateral boosts other loan approval factors like credit history, monthly salary payment receipts, bank statements, and DSR.

Also, besides a low personal loan interest rate, secured loans have a higher loan amount ideal for a long-term loan repayment period. Therefore, secured loans are the best personal loan category for comfortable loan repayments. However, the extended repayment period translates to a higher interest payment in the long run.

Unsecured loans require zero security, but lenders still consider the information on your credit report, like previous loan repayments and outstanding debt, when considering eligibility for unsecured loans. Most personal loans in Malaysia are unsecured loans.

The advantages of unsecured loans to lenders include an expedited application process (loan approval and disbursement within hours) and zero risk of asset loss. However, unsecured loans typically attract higher interest rates due to a higher risk to the lender.

Also, unsecured loans have a significantly lower loan amount than secured loans (approximately up to RM250000) and a shorter loan repayment period that can strain your gross monthly income. However, an unsecured loan is the best personal loan for debt consolidation; you can learn more about debt consolidation later in this segment.

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Conventional loan vs. Islamic loan in Malaysia

Malaysia has a dual banking system featuring conventional banks and Islamic financing. Conventional banks earn from interest-based transactions by lending money and charging interest as compensation. They may charge a flat or fixed interest rate on the personal loan; you can learn more about how banks calculate interest later in this segment.

In contrast, Islamic financing trades in assets and benefit from lending as stipulated in the Quran under the Principle of Murahabah, which prohibits “riba” or benefiting from interest. Therefore, under Islamic banking, the personal loan facility extended to borrowers is an asset bought from the bank’s saving customers.

The bank sells the loan to the borrowers who pay for it via monthly loan repayments at a markup price. Therefore, the price markup on the loan asset facilitates an interest-free transaction and explains why Islamic banks charge a profit rate rather than interest rates. So, Islamic banks transfer ownership of the loan asset to the borrower on completing payment and share the profits from the sale among saving customers.

However, it is legal for Islamic banks to charge loan-related administrative fees, including a processing fee. Moreover, Islamic financing allows penalties for late payments. But the penalties are more lenient than conventional banks because Islamic banks charge the penalty on the outstanding debt rather than the total loan amount.

While Islamic financing is Shariah-compliant, the personal loan facilities from Islamic banks are an indiscriminate service available to Muslims and non-muslims. According to one publication, Bank Negara Malaysia allowed conventional banks to open an Islamic finance window in 1993 and targeted to increase their market share to 40% by 2020. Consequently, prominent Malaysian banks like Alliance Bank have Islamic financing facilities alongside conventional banking.

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  • When is The Best Time To Take A Personal Loan?

A personal loan is a flexible personal financing tool. Therefore, you can apply and use it for almost any conceivable personal financing needs, from starting a business and becoming self-employed to taking a vacation or covering medical costs.

However, while personal loans are readily accessible, they can ruin your credit score. Therefore, consider taking personal loans that advance your financing via good debt. One such personal loan is the debt consolidation loan.

Debt consolidation is a personal financing strategy that entails acquiring a new loan and using the loan amount to pay off the outstanding balance on multiple debts like outstanding bills, credit card debts, and other loans. A debt consolidation loan has numerous advantages, including fixed monthly instalments that may be lower than your previous monthly payment on multiple debts.

Second, you may receive a lower interest rate or profit rate on the debt consolidation loan. Also, loan consolidation credit facilities are the best personal loans to clear your debts faster and improve your credit score.

However, be wary of an early settlement fee on our previous loan contracts before taking up a loan consolidation bank. Also, consider using a personal loan calculator to establish the monthly repayment amount before applying for a debt consolidation loan.

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  • How are interest rates calculated for personal loans?

Interest rates on personal loans in Malaysia begin with a base rate (BR) set by Bank Negara Malaysia. Essentially, banks cannot lend below the BR rate, but they have the autonomy to generate an individual effective lending rate (ELR) for their customers.

However, consumer credit risk factors like credit scores, debt service ratio, loan amount, gross monthly income, and loan period also influence the ELR. Consumers presenting a higher loan default risk typically receive interest rates on the higher side of the ELR baseline.

Besides the ELR, the total interest calculation formula matters. Essentially, the most straightforward interest rate calculation includes a flat interest rate charged on the principal loan amount throughout the lending period. However, Malaysian banks have the autonomy to invoke the Rule of 78 or an interest calculation principle that allows them to enhance interest collection during the earlier monthly repayments on the loan tenure.

Such calculations include the compounded interest rate, which applies to the outstanding balance after each monthly repayment rather than the principal amount. Therefore, understanding your bank’s interest calculation formula helps you objectively compare personal loans across different lenders and settle on the best personal loan.

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Section 2: Eligibility and Requirements

  • Which bank is best for a personal loan?

The best bank for a personal loan depends on the loan product you seek based on your gross monthly income and employment status. Some banks have personal loan products curated primarily for government employees and government-linked companies, while others cater to private sector employees.

Second, different banks have unique ELRs and personal loan interest rate calculation formulas. Therefore, two banks with a similar ELR may offer a similar loan amount with two distinct total interest values.

Also, banks have a minimum monthly income requirement and a minimum and maximum loan amount. Lastly, banks have different personal loan types, including secured and unsecured loans, conventional, and Islamic loans. Therefore, conduct due diligence using online loan comparison platforms and services to identify the best personal bank loan for you.

  • What documents should I prepare to apply for a personal loan?

Banks and other certified Malaysian lenders predominantly ask borrowers to submit the following documents during a loan application.

  • Personal identification documents (MyKad)
  • Proof of payment (payslip, commission slips, wage slips). The duration may vary from one month to three months.
  • Bank statements
  • Employees’ provident fund (EPF) documents
  • Tax forms

The prerequisite documents may vary slightly depending on the bank.

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  • Does the bank check my credit report before approving my loan application?

Yes, the bank must check your credit report to calculate your interest rate. They rely on credit reporting agencies like the Central Credit Reference Information System (CCRIS).

Your credit report documents all your monthly commitments and payment history. However, you can purchase your credit report from LoanPanda and contest an unfair credit score.

  • What Factors Banks Consider When You Apply For A Personal Loan?
    1. Regular Income: A regular income guarantees the bank that you can meet your monthly repayments; hence why they may request proof of payment. Moreover, a steady income improves eligibility more than an irregular yet high income or high income over a shorter employment duration.
    2. Credit Score: A credit score is a three-digit number ranging from 300 to 850 featured on your credit report, highlighting a borrower’s creditworthiness. According to CTOS’s 2022 consumer report, an excellent credit score ranges from 744-850, 718-743 (Very good), 697-717 (Good), and 651-696 (Fair). On the other hand, a credit score of 529-650 is low, and anything below 528 is poor.However, you can improve your credit score by establishing a credit history, streamlining it, or checking for errors and contesting them. Nonetheless, any changes to your credit score reflect in six months or a year.
    3. Credit History: A borrower’s credit history is the credit report segment detailing your credit activity, including timely payments, delayed payments, and defaults.
    4. Debt Service Ratio: The debt service ratio is a formula expressing your monthly commitments to existing liabilities as a percentage of your gross monthly income. For example, if you earn RM3000 and are servicing RM1200 in liabilities, your debt service ratio is 1200/3000×100%= 40%. According to one government agency publication, most banks can lend to borrowers with a DSR not exceeding 60%, although a DSR range of 30% to 40% is preferable.
    5. Assets: Banks may investigate your assets, including savings, and may consider borrowers with more assets as low-risk borrowers.
    6. Application Frequency: Frequent loan and credit applications across diverse credit lines within a limited duration indicate a high-risk borrower.

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Can Malaysians working in Singapore apply for personal loans in Malaysia?

Yes, any Malaysian citizen residing and earning an income in a foreign country can apply for a loan at a Malaysian bank, provided they meet the eligibility criteria.

Section 3: Step-by-Step Guide to Applying for a Personal Loan

  • Step 1: Assessing Your Needs and Eligibility.

As stated earlier, while personal loans are invaluable personal financing tools, they can become a trap, ruining your credit score and straining your monthly income. Therefore, consider the amount of money you will need to borrow for a particular personal expenditure.

Income level is among the most significant loan amount determinants. Therefore, consider using a personal loan calculator to establish your maximum loan amount with high accuracy. However, only apply for the amount you need, even if you are eligible for a higher amount. Also, consider loan terms like interest rates, profit rates, and loan tenure before applying for any personal loan facility.

  • Existing Customers vs New Customers: What You Need to Know.

The loan application process in most banks is similar for existing and new customers. Both customer categories can use online banking platforms to apply for a personal loan.

However, you can use your rapport with the bank to negotiate for a lower interest or profit rate as an existing customer. Some banks have exclusive personal loan products for existing customers. While others have welcome offers like a lower interest rate or a waived processing fee for new customers.

  • How to Apply Instantly via the MAE app or Other Online Platforms.

The MAE app by Maybank is among the most popular online banking borrowing platforms. It allows Malaysians aged 21-60 years earning at least RM3500 to borrow any amount from RM5000 to RM100000 over a 2-6 years loan term. Moreover, the unsecured loan excludes stamp fees and a processing fee.

Below is a step-by-step guide for applying for a personal loan via the MAE app.

  • Download the MAE app from Apple Store, Google Play Store, or the Huawei AppGallery.
  • Open the app and click on apply
  • Under the apply tab, go to loans the click on Personal loan/financing-i
  • Step1: Enter your monthly income, as prompted to begin your application
  • Step 2: Agree to a credit health check as prompted by the app by checking the Terms and Conditions checkbox
  • Step 3: Enter your loan requirements, including the loan amount you need and the loan tenure.
  • Step 4: Agree to purchase a Takaful insurance plan
  • Step 5: Enter your details, including contact information
  • Step 6: Enter your employment status as prompted, including your occupation, employment type, sector, and business classification, by selecting the appropriate answer from the drop-down menu in each field.
  • Step 7: Enter your monthly non-bank commitments
  • Step 8: Review the terms and conditions and agree to proceed.
  • Step 9: Review your application to ensure information accuracy before clicking the submit button.
  • Step 10: Upload and submit the prerequisite documents within 72 hours/3 days.
  • Step 11: You shall receive a notification that your application is “approved in principle,” meaning it’s under review, and the bank shall contact you within three days.

The MAE online banking app works for Malaysians with salaries credited to Maybank and non-Maybank accounts. Also, the process is pretty similar to other online banking platforms.

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The loan approval process in Malaysia.

The loan approval process for banks in Malaysia is at the Bank’s discretion. Nonetheless, the banks verify your details, including supporting documents and running a credit check after receiving your credit report from the CTOS or the CCRIS.

Depending on the bank’s policy, loan approval times range from 24 hours to 5 working days. Also, some banks merge loan approval with disbursement; disbursement is a day after approval for others.

  • Monthly payments: Understanding Your Commitment.

Making timely monthly payments on your personal loan helps improve your credit score and prevent penalties, enhancing your eligibility for future loan approvals. The monthly payment on your loan is the amount you remit to the bank each month throughout the loan tenure.

Failure to make your monthly payments on time attracts a delayed payment penalty and taints your credit score. Moreover, failing to meet three consecutive monthly commitments is a loan default.

  • Early Settlement Fee: What You Need to Know.

You can opt out of monthly repayments by paying a lump sum on your loan to reduce the loan repayment period. However, early settlement may attract an early settlement fee if your loan terms include a lock-in period.

A lock-in period is a preset duration during which a bank institutes a penalty for pre-paying a loan before completing the loan tenure. Its’ primary purpose is ensuring banks receive a fair share of interest from the credit facilities they extend. However, you can avoid early settlement fees if your loan terms exclude a lock-in period clause or clear the loan after the lock-in period lapses.

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Section 4: Understanding Costs and Fees

  • Late Payment Charges: What Happens if You Pay Late?

Late payment is when you fail to remit the monthly repayments on your loan by the agreed-upon due date. A late repayment turns your loan delinquent and attracts late repayment fees as a penalty. The late repayment fee is a percentage (usually 1%) of the loan’s interest rate charged daily from the due date until you pay the instalment.

  • Fees and Charges for Personal Loan: A Comprehensive Guide
  1. Loan origination/ processing fees: Charges for the administrative costs of processing a loan. The fee is a one-off instituted by the lender, who deducts it from the total loan amount before disbursement.
  2. Stamp Duty/ Stamping Fee: A government levy charged 0.5% of the total loan value for stamping the loan agreement between the bank and the borrower.
  3. Late Payment Fees: A penalty for failing to remit the monthly payments by a specified due date.
  4. Early Payment Fee: A penalty for violating the lock-on period clause in a loan agreement.

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Section 5: Special Considerations

  • Should I choose a personal loan or balance transfer to consolidate my debts?

A personal loan and credit transfer are lines of credit that centralize multiple debts, earn a lower interest, and facilitate faster debt repayment. While a balance transfer is exclusive to credit cards, a personal loan can clear any debt, including utility bills and credit card debt. Moreover, borrowers can put the disbursed funds to any use outside debt consolidation.

A balance transfer requires a substantial credit card limit to accommodate debt from other credit cards. Also, personal loans have a more extended repayment period, reducing the strain on monthly income.

  • Why was my personal loan application rejected?

The top reasons for loan application rejection include:

  1. A poor credit score/ history
  2. Limited employment history
  3. Failing to meet the income eligibility for particular loan facilities
  4. Several concurrent loan applications (loan inquiries hurt your credit scores)
  5. Inaccurate information in your application
  6. High DSR
  • Will a personal loan affect my credit score?

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Credit scores in Malaysia comprise five components; payment history, owed amounts, credit history length, credit mix, and new credit. A personal loan can improve your payment history, provided you make timely monthly payments. It can also diversify your credit mix and improve your new credit score, provided it is the only new credit on your credit report.

However, it can make you score poorly on the owed amount section and shorten your credit history. Nonetheless, payment history is most significant in your credit score, accounting for 45%.

  • When is my personal loan monthly instalment due date?

Your personal loan monthly instalment commences precisely one month after your loan approval date. Your bank should indicate the due date in your loan approval letter.

  • How long will I need to pay off my loan?

The loan tenure for personal loans in Malaysia is six months to ten years. Therefore, select a comfortable loan tenure during your application.

  • Do I need to apply for a personal loan?

It depends on your personal financing strategy. However, personal loans are handy for cash flow, debt consolidation, and cash emergencies.

  • Do Personal Loans require collateral?

Personal loans in Malaysia are primarily unsecured, making collateral unnecessary

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Understanding personal loan types, eligibility requirements, best uses, costs and fees, and loan structure is crucial when applying for a loan. Such knowledge gives you the upper hand during your application, allowing you to ask potential lenders the right questions on how their personal loan product can fulfil your personal financing needs. Therefore, consider consulting financial experts at Loan Panda for professional guidance on navigating personal loans.d

Frequently Asked Questions (FAQs)

  • How much loan can I get on my salary?

Different banks have different minimum income requirements and maximum personal loan disbursement policies. These policies ensure borrowers can repay their loans, and a steady income is a good indicator. It also protects the banks from exposing themselves to financial losses from defaulting customers.

So, depending on your income range and credit history, a bank can loan you any amount from RM10000 to RM250000 on a personal loan.

For example, Bank Rakyat Personal Financing lends low-income customers up to 5 times their monthly salary. In comparison, high earners can receive up to 20 times their monthly salary as a personal loan.

Before proceeding with your application, you can confirm how much you qualify for using the personal loan calculator.

  • What is the best way to get approved for a personal loan?

Maintaining a high credit score, and a low DSR, limiting borrowing, and ensuring you meet all eligibility criteria during your loan application.

  • Who offers the cheapest personal loan?

The factors determining a loan’s affordability include the interest/profit rate (could be fixed or variable interest rates) and loan tenure. Both factors determine the total amount repayable on a loan because the loan tenure determines the total interest owed.

Moreover, loan term elements like the monthly repayment amount and associated fees (origination, early settlement, and late patent fees) influence the strain a personal loan puts on your monthly income.

Therefore, consider the highlighted factors when evaluating loans based on affordability. LoanPanda’s personal loan calculator can compare loan product terms across over 30 conventional and Islamic Malaysian Banks, helping you identify the banks with the most affordable loans. Consider using a comparison tool to identify lenders offering the lowest interest and profit rates on personal loans.

  • What is the minimum salary for AEON personal loan?

AEON has multiple personal loan products with distinct minimum salary requirements. Therefore, use a comparison tool to identify the AEON personal loan product within your income range.

  • How do I ask my bank for a personal loan?

Fill out a personal loan application form, attach the prerequisite documents, and await approval.

  • Who is the easiest to get a personal loan from?

Consider using a personal loan comparison tool to identify banks offering low-interest, fast-approval loans.