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Islamic law states that money shouldn’t have value; it should be the means for exchanging goods and services. Conventional banking sees value in money, which is the first difference between conventional and Islamic economics. Let’s understand what islamic finance refers to and how does it differ from conventional banking.
According to Sharia law, people shouldn’t be making money from one another; such indexes are immoral and unethical in the Islamic financing system.
In the Islamic financing world, Islamic loans came into existence in the 20th century. Islamic scholars noticed that conventional loans didn’t have Sharia compliance. Islamic banking, or Shariah-compliant banking, is based on the laws of Shariah principles.
This implies that the Islamic banking sector bases its products on Islamic principles, excluding practices that don’t follow Islamic law.
Some of the practices excluded from Islamic personal financing include:
Islamic financial institutions will not support impure income businesses or small and medium-sized enterprises that promote gambling, alcohol and tobacco consumption, narcotics, pork products, etc.
Islamic financial services board won’t allow conventional loans with a high-interest rate. The Muslim community doesn’t support riba due to its unethical principles.
Islamic banks won’t offer products that may represent a risk-sharing experience and harm the customer. Since Islamic principles don’t support risk or uncertainty, Islamic finance institutions will keep their products safe.
Islamic law criticises oppressive behaviour and unjust acts. Thus, banks will offer Islamic banking products that comply with Sharia law.
Since Islamic personal loans are in accordance with Shariah principles, you may be wondering how to get an Islamic loan.
Islamic personal loans cover basic needs, making the loan amount enough for basic things; thus, Islamic banks won't accept your request if your goal is to live a luxurious life from the loan.
Islamic banks have a low-profit rate due to the Shariah-compliant banking system.
Moreover, to access Islamic loans and financing, a financial institution will do a background check on you or your business to ensure that your behaviour is Shariah-compliant.
Both Muslims and non-Muslims can apply for an Islamic personal loan. The creditor should check whether the debtor intends to give the money back. If not, the creditor shouldn't issue an Islamic loan to such people.
Moreover, if a debtor doesn't return the loan, the creditor should remit the debt; this act is Shariah-compliant.
Since Islamic banks don't want to charge a compounding interest rate, the creditor will purchase assets in the debtor account and sell them at a higher price; this ensures that an Islamic bank is making money when financing.
This process is called Murbaha.
If you have trouble finding the perfect bank, we are here to help. Some of the best banks following the Sharia law do not charge interest (or are charging minimum interest) to earn a profit margin. Here are some examples:
Agrobank AgroCash has many investment funds made for Islamic loans. The minimum principal amount is RM 10,000, and the maximum is RM 200,000. This might be the perfect chance if you want quick approval and have up to 10 years to repay your loan.
This bank will review and approve your application in less than 24 hours. Alliance Islamic Bank CashVantage Personal Financing is here to the rescue if you need money fast.
Moreover, the minimum principal amount is RM 5,000, and the maximum is RM 150,000, making this the perfect choice for everyone.
If you are over 18 with a salary of over RM 3,500, you can apply for a private loan from Bank Islam Personal Financing. Once you get a loan between RM 10,000 and RM 150,000, you can repay it over ten years.
A credit card is a convenient tool for people to pay for purchases today, offering many perks and rewards that can add up to more savings for the cardholders.
Today, consumers often use credit cards as payment for their purchases since they are convenient and often come with benefits and incentives that can result in additional discounts for cardholders. With a wide variety of these cards with various advantages, you might ask how to pick the ideal one for your financial needs. We have collected the following FAQ to enable you to understand the most relevant questions regards credit cards, including user conditions, interest rates, and primary payment terms.
Here’s a short guide LOANPANDA has compiled to help you understand the credit card requirements, interest rates and basic payment terms.
Depending on the country and the Islamic bank, the requirements may differ. One should be at least 18 years of age to apply for an Islamic personal loan.
Moreover, the person applying for the loan should have a minimum income; as mentioned, these loans cover the basic cost of living.
Once you choose the bank, you can start preparing your documents. You must provide proof of income, bank statements, tax payments, monthly gross income, etc.
Depending on the bank you choose, the required documentation may differ.
The difference between conventional banking and Islamic banking is that the lender of a conventional loan has an interest; the lender wants to earn a profit.
On the other hand, in Islamic personal financing, the lender's goal is to create benefits for both the client and the lender.
The Islamic culture believes that we should be one with the community and help each other when possible, even through a financial instrument.
Another critical difference is charging interest. In conventional banks, the lender will require you to pay interest according to the type of loan someone applied to. Most of these banks earn a profit from interest.
However, due to the laws, Islamic finance is characterised by lower interest rates.
Islamic financing wants to be transparent with its clients and treat everyone equally. Islamic personal loans often set a clear and transparent monetary policy where both sides understand and comply with the terms and conditions.
In conventional loans, the conditions may be overwhelming, and there may be various tricks in the lending contract.
In the conventional world, banks will set fees for late payments. One may have to pay more significant interest rates if they don't pay their dues on time.
Luckily, Islamic finance recognises that money doesn't have value; thus, these institutions won't charge a fee if you're late with your payment.
More and more banks want to offer financial inclusion; thus, the Islamic finance market keeps growing daily. To choose the best Islamic finance institution, you should take a couple of things into consideration, such as:
A trustworthy bank will have a good reputation and a vast network of users. For example, the bank Negara Malaysia is one of the best banks for all Malaysian citizens who want a personal loan because they work in a Sharia-compliant manner.
You may have encountered online banks that offer precisely what you are looking for. However, some of these banks (especially online ones) may be a scam.
To check whether a bank is trustworthy, you can see how many products or services they offer. If there are numerous options, the bank is reliable.
As we have already mentioned, Islamic banking won't charge a high-interest rate. Thus, when choosing a bank for a personal loan, you should ensure that it meets these accounting standards.
Any Islamic personal financing institution will have a good customer support team. Once you find a bank that meets your needs, you should contact the support team; if they're helpful and treat you kindly, you may have chosen the right Islamic finance institution.
Freeing yourself from conventional bonds and becoming a part of the Islamic finance world may benefit you in various ways. For example:
Islam has principles that fulfil each believer's life. However, some institutions don't include all faiths and don't offer diversity. By becoming a member of the Islamic finance world, you will be able to cherish your religion and its principles.
Islamic loans will encourage you to save and invest your underlying asset instead of conventional loans, where you have to worry about compounding interest. They won't promote consumption but will advise you on becoming financially stable.
Most banks offer numerous options regarding the return policy. Since withdrawing money has become digitalised, you can set up your account and transfer money in a few easy steps.
For example, the Islamic bank can withdraw money from current accounts, make a monthly repayment, and save the debtor from going to the bank in person.
Moreover, one can set up Standing Instructions where the bank will set up a monthly repayment and automatically transfer them to another account.
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