Two Obvious Reasons to #SayNoToAhLong
Even though you may be desperate for cash, borrowing from an ‘Ah Long’ is definitely not the way to go and here’s why:
1. It can be really, really dangerous
There’s no exaggeration here – loan sharks are a hazardous species that prey on vulnerable folk who find themselves in dire financial situations.
When borrowers are unable to pay, loan sharks have reportedly resorted to threatening the borrower and their family members, violent harassment, and worse…
2. It’s really, really expensive
You’ll never get a fair deal because Ah Longs operate ‘independently’ and charge interests and fees as they please.
A famous case involved a loan shark charging an unbearable RM1,600-a-day penalty fee for a RM2,000 loan.
Some even continue to extort borrowers after full payments are made!
This should certainly be reason enough to stop you in your tracks if you are planning on borrowing from a loan shark.
Here are a few safer, cheaper options to consider when you need cash:
1. Personal Loans
Even though a personal loan is one of the best options to access to quick cash safely, it isn’t always a viable option for all.
Potential borrowers who have tried applying for a personal loan and were rejected are the ones in danger of seeking out the services of a loan shark when desperate.
But what’s important to point out is that there are many different types of personal loans out there.
Thus, when applying, be sure to do your homework and look for a loan that is apt for your circumstances. This may improve your chances of securing one.
For instance, if you are earning a modest salary, look out for low-income personal loans.
If you are a government servant, check out personal financing options and plans offered specially for those in civil service.
You may also want to consider a secured personal loan (requiring a guarantor and collateral), if you are worried about your credit history.
Still, if a personal loan is not an option for you, check out the other suggestions on our list.
2. Credit Card Cash Instalment Plan
If you have a credit card, then you might want to consider applying for a credit card cash instalment plan that is available with most cards.
How does it work? A cash instalment plan typically allows you to convert your remaining credit limit into a loan with a fixed repayment plan.
Interest rates range from standard credit card financing rates of 15% p.a. to 18% p.a. or more attractive promotional rates.
The application process for a cash instalment plan differs with banks but you’ll likely be able to apply via online or phone.
The speed of disbursement also differs but will generally range from 24 to 48 hours, sometimes more.
If you need to borrow cash on the spot however, then an ATM cash advance via credit card is an option to consider.
But take note, an ATM credit card cash advance is a very expensive way to get the cash you need and if you can wait it out, then it is best that you do.
3. Licensed Money Lenders
If you have no credit card and a slim chance for a personal loan, then a licensed money lender may prove a better option.
And the good news is a licensed money lender is the complete opposite of a loan shark, for a number of reasons.
For one, a licensed lender is not allowed to charge exorbitant, exploitive interest rates.
In fact, since they are licensed and regulated, they may only apply a rate of up to 12% p.a. for a secured loan and 18% p.a. for an unsecured personal loan.
Another important way a money lender is different from a loan shark, is that they aren’t allowed to intimidate or harass the borrower for repayment.
This, along with much more severe repercussions, as mentioned above, is the calling card of a loan shark!
Thus, it is much safer and cost-efficient to seek out a licensed lender instead.
Look through this licensed lender directory from the Ministry of Urban Wellbeing, Housing and Local Government (KPKT) to discover ones in your area.
You can also check out JCL, a licensed money lender that lets you directly apply online and that promises quick processing within two days (if your docs are in order, etc.).
4. EPF Withdrawal
Depending on what you need the cash for – an EPF withdrawal is a cost-friendly, quick and viable option for you.
If you have built up a stash in your EPF Account II, you may withdraw to pay for:
- Your home loan redemption
- Medical expenses
- Education tuition
- Performing hajj
One thing to consider is that even though there isn’t an interest charge on this cash (it’s your money after all), you will be losing out on potentially attractive dividend earnings.
These dividend earnings can be quite substantial, as it earns 6% to 7% per annum (historically), tax-free.
Thus, one way to consider if you should take out a loan instead of using your EPF money (where applicable), is to calculate the cost of funds to see which option helps you save more.
5. Cash-Out Refinancing
So what is cash-out refinancing?
It’s a method of taking cash ‘out’ of the equity you have built on your home as it increases in value and the balance owed on your mortgage is reduced.
With cash out refinancing, you are essentially taking out another loan on your home and pulling cash from the difference between the loan balance and the appreciated value.
Of course, for this method to apply to you, you’ll have to own a property long enough for it to have built up value.
Although cashing out through refinancing isn’t the fastest way to access the cash you need, it is certainly one of the cheapest. The average rate runs from 4.5% p.a. to 4.7% p.a.
This is indeed much lower than the average personal loan rate of 7% p.a. to 8% p.a. or credit card rate of 15% p.a. to 18% p.a.
Also, you can obtain a much larger loan amount too, depending on the value of your home and mortgage balance.
Still, do note the risks – especially if you are taking a loan on a fully paid-up house. You could lose your home if you are unable to repay the loan.
As you can see there are so many ways to borrow money safely that you’ll hopefully never resort to borrowing from loan sharks! How about starting out with a personal loan?
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