Choosing a Loan Choosing the right loan is not something that should be taken lightly. Loans can be a very handy tool to have at your disposal when used the right way but pick the wrong one and you could find yourself buried under a mountain of debt. In Malaysia there are many loans to choose from from personal loans, housing loans, loans for small and medium enterprises, or loans for SMEs and more. Here is a complete guide about how to choose the loan that is best for you in Malaysia.
Main Considerations When Choosing a Loan
Here are the main considerations to pay attention to before coming out with the type of loan that you want to take. Both of these considerations will have an impact on which loan you choose and therefore the condition of your finances going forward.
1. Purpose of the Loan
Every loan has different purposes and uses; it is always important before you apply for a loan to really know the purpose of the loan–is it a loan to buy a house or continue your education or fund a business? Knowing the purpose of the loan will help you choose the right type of loan.
2. Interest Rate and Hidden Fees
Interest rate. Of all the factors for considering a loan, the interest rate ranks at the top. The lower the interest the less you will have to pay on the loan. But, remember, some have additional cost factors that will affect the total you must pay, such as application fee, an administrative fee, and a bill for late payment.
3. Repayment Ability
Find a loan that fits your capabilities. Your loan installments shouldn’t put you under. Know how much you need to spend every month and how much you can cover to pay off such installments on a monthly basis. Also consider how much your income might change in future.
4. Reputation of the Financial Institution
Pick a financial institution that’s trustworthy and reliable. You’ll not only get a good service, but the process will also be transparent and there will be no additional hidden fees that’ll surprise you in the end. Aside from being natural institutions to borrow from, trusted financial institutions have an upper hand on ease and comfort when loan apps do get requested.
Types of Loans Available in Malaysia
There are many types of loans available in Malaysia, depending on your needs and the purpose of the loan. Here are some of the common types of loans that you can apply for:
Personal Loans: Advantages and Disadvantages
Personal Loans A loan made to a person without security or specific guarantee. Money can be raised using this loan for education fees, medical bills, renovating a home, etc. Under major banks offering personal loans are Maybank, CIMB, RHB, Public Bank, etc.
Benefits:
- Doesn’t require collateral / guarantee.
- Funds can be used for various personal needs.
- Quick and easy application process.
Drawbacks:
- Can have higher interest.
- No flexibility in the use of funds.
Housing Loans: What You Need to Know Before Applying
A housing loan is another name for a loan used only to buy a house or other properties. Banks with attractive housing loans include Hong Leong Bank, OCBC, UOB and Bank Islam, etc. Since the interest you need to pay is lower (the house is collateral), this type of loan usually has lower interest rates.
Advantages:
- Lower interest rate than personal loans.
- Payable over a long period of time (30 years).
Disadvantages:
- Application process is more complicated and takes longer.
- Requires collateral of the home being purchased.
Criteria for Choosing Loan Offer
When you know what type of loan you need, the next step is to choose the loan offer. Here are criteria to use when selecting the best.
1. Interest Rate
The rate of interest every lender charges will dictate how much you will ultimately pay back over the term of the loan so ensure you understand whether the figure is a fixed or variable rate and how it is calculated.
2. Loan Duration
A loan for a longer period will enable you to repay smaller monthly instalments, but will cost you more money in interest. A loan for a short period will entail larger monthly installments and cost you less money in interest.
3. Other Fees
In addition to the interest rate, make sure you know about other fees relating to the loan such as application, administrative and closing fees, which will add to the total amount you’ll have to pay.
Calculating Interest and Hidden Fees
Before applying for a loan, check how interest is calculated, and find out if there are any hidden fees. Some banks like Maybank, CIMB and Alliance Bank have online loan calculators that will also calculate the overall cost of the loan including any interest and fees.
Always include these costs when figuring out how much the loan would ultimately end up costing. Also, verify if there are any costs associated with prepayment and late payment of the loan.
Loan Application Process
Generally, applying for a loan in Malaysia is not a complicated process. However, you do need to get a few documents ready. Here’s what you need to do to fill out a loan application:
Documents Required for Application
Each lender may have slightly different document requirements, but typically you will need to provide the following papers for loan application:
- Identity card or passport
- Payslips or proof of income
- Latest bank statements
- Property documents (for housing loans)
Creating a Realistic Repayment Plan
It is important to create a realistic repayment plan before approaching a loan house for money. The monthly installment should be in line with your ability to repay. You can use loan simulations offered by financials to calculate your ideal monthly installment.
Comparison of Loans from Banks and Other Financial Institutions
Besides banks, there are also non-bank financial institutions giving out loans at competitive interest rates, such as P2P Lending sites like Funding Societies, Funding Circle, etc. Loans given out by these non-bank financial institutions allow you to borrow directly from investors, so the terms are usually more flexible.
Loans for Small and Medium Enterprises (SMEs)
Financing For Small and Medium Enterprise Owners For SMEs, the SME Bank, Agrobank and Bank Pembangunan Malaysia offers a variety of options at low interest and flexible repayment terms.
SME Financing: From Banks and Microfinance Institutions
If you own a small firm that needs financing, banks like SME Bank and Bank Rakyat provide loans for small businesses that need the funds to expand the company or buy new equipment. These SME loans tend to have lower interest and a shorter application process.
Conclusion
Choosing the best loan in Malaysia is very well pursued. By understanding the types of loans, and knowing what criteria to evaluate a loan offer with, you can make a wiser choice. If you need a quick loan, we suggest the RM500 Instant Loan by Amanahkredit, to access your money quickly and easily.