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5 Things You’ve Always Wanted to Know About Personal Loans – Answered!
If you are curious about personal loans, then you’ve come to the right bear cave! We’re getting all up in the business of personal loans to answer you deepest, darkest queries for this method of financing.
So let’s get to it – here are five things you’ve always wanted to know about personal loans – answered!
1. Am I eligible to apply for a personal loan?
Personal loans are one of the easiest loans to apply for since it is often categorised (in Malaysia) as an unsecured loan. This means you do not need a guarantor or collateral to apply.
But still, even though the process is not as vigorous as a house loan, for instance, there are a few basic requirements that affect your eligibility.
For starters, all banks will state a minimum income requirement. Here you will have to prove that your annual income falls within or above the stipulated range. This amount varies among banks, but your minimum annual earnings should be at least RM18,000 to RM24,000 or more per year if you want to apply for a personal loan.
Your eligibility also depends on your employment status. Generally, those with permanent employment make for better candidates but banks often consider the self-employed as well. Certain personal loans, like co-operative loans specify that applicants are only eligible if employed by the government or under government-linked companies, statutory bodies and related agencies.
Apart from these criteria, you’ll need to be of age too – typically 21 to 65 years – and be a Malaysian citizen or Permanent Resident employed in Malaysia (varies with banks). If you are a foreigner in need of a personal loan, do read our piece on how to apply as a foreigner.
Last but not least, your credit history may also play a part to affect your eligibility, particularly if you have defaulted on loans, were recently declared bankrupt or possess significant credit card debt. Read this post if you think you have been blacklisted by banks due to the mentioned reasons.
2. What can I use the money for?
Anything! See unlike a car or home loan where you have to use the money to either buy a car or house, a personal loan is for use in any way you see fit.
People often take out personal loans for a number of reasons. A big one is to consolidate debt; this is when a person owes multiple lenders or has incurred various types of debt and uses the money from the personal loan to pay it off.
This can be a smart move if the interest rates on the personal loan are lower than that of the outstanding debt, which is usually the case if the personal loan is taken to cover credit card dues.
Other reasons to take out a personal loan include paying for your education, medical bills, a renovation or wedding reception, contributing to a small business, and sometimes even as a quick source of cash when you are strapped.
3. How quickly can I get my money?
Most personal loans in Malaysia are processed quickly, usually within three working days but some loans can be approved (or rejected) and disbursed super swiftly. These are known as ‘fast-approval loans’. RHB Easy-Pinjaman Ekspres is an example of a fast-approval loan; you can get an answer in as little as 10-minutes!
Other fast-approval loans could take anywhere from just 24 to 48 hours. So if you are in need of emergency cash, a personal loan is a good option.
4. How much can I borrow?
The amount depends on a number of factors, namely the loan product you are applying for, your income level, the interest rate and the loan tenure.
Some banks offer personal loans in very generous amounts, up to RM250,000 but your eligibility for such a hefty sum would depend on your earnings and other variables.
To figure out how much you can borrow, try working backward by looking at your potential repayments first. As a rule of thumb, your loan repayments should not exceed one-third of your monthly income. This means that if you earn RM3,000 per month, your monthly repayments should NOT amount to more than RM1,000.
Let’s do some math:
Say you want to apply for the Alliance Bank CashFirst Personal Loan, which is currently offering a promotional interest rate of 4.99% per annum, if you borrow with a maximum tenure of two years.
With monthly earnings of RM3,000 – you can reasonably borrow up to RM21,700 within the repayment tenure of two years (at a rate of 4.99% per annum if you are eligible).
This is because repayments for this figure will be RM994.40 per month for two years, less than one-third of your monthly salary. Of course, this is just a rough estimation and the maximum amount you are allowed to borrow is at the sole discretion of the bank.
If you are planning on a Citibank Personal Loan, the maximum amount you can borrow is up to eight times your monthly income. So if you earn RM3,000 per month, you might be able to enjoy a loan of up to RM24,000 instead.
5. Is a personal loan affordable?
A personal loan can be affordable but this depends on the fees and interest rates charged as well as the loan tenure you choose. In general, a personal loan with higher interest rates and fees are definitely going to cost more in the long run.
The average rates for personal loans are about 7% to 8% but these numbers can go lower during promo periods or higher, depending on the applicant and other factors (e.g. loan amount and tenure).
You can improve the affordability of your repayments by looking for low-interest loans, with fewer fees and also by stretching out the loan tenure for a longer period.
Do bear in mind though that if you have a poor credit profile, you may be assigned slightly higher rates, if you get approved.
The typical loan tenure for personal loans is five to seven years; where certain banks may offer a little more repayment time i.e. Citibank Personal Loan, which offer a maximum tenure of eight years.
However, do note that when the loan tenure is longer (and monthly repayments appear smaller), overall interest costs will be higher.
If you are in need of a personal loan, be sure to get one that is just right for you!
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