The Basics of ASB Loans
Like the ASB fund, ASB loans are only open to Bumiputeras. After submitting all income documents to the lending bank, the customer will have to open an ASB account with the bank. Once the loan application is approved, the lending bank will credit the loan amount directly into the customer’s ASB account.
Every month, the investor (who is the borrower) has an obligation to repay in monthly instalments. Additionally, some management and documentation fees might be charged by banks when applying for an ASB loan.
ASB loans are basic term loans, and interest charged on ASB loans is calculated using the reducing balance method (similar to those used by Housing Loans and Fixed Deposits). Most ASB loans today use floating interest rates, so interest rates will change according to BLR.
Much like mortgage insurances, customers can choose to cover their ASB loans with insurance / Takaful that is financed by the banks. These insurances will cover the remaining loan amount in the event of death or total permanent disability (TPD).
Early Settlements
There are no penalties on the early settlement by the borrower as long as it is not within the lock-in period. The borrower is only required to settle off the remaining loan balance. But an exit penalty is imposed if the loan is settled within the lock-in period.
However, do note that unlike semi-flexi home loans, ASB loans are basic term loans. Extra payments in monthly instalments do not lower the interest payable.
Where to Get an ASB Loan?
In Malaysia, some of the banks that are agents for ASB funds also provide ASB loans. At this time of writing, These banks offer ASB loans:
- Maybank
- Ambank
- Bank Simpnan Nasional
- Affin Bank
- CIMB
- RHB
- RHB Easy
Comparison between using savings and ASB loan
Compared to using your own cash on hand to purchase ASB units, there are certain differences in the mechanism when taking an ASB loan. The table below provides a comparison overview:
| Own Money | ASB loan | |
|---|---|---|
| Minimum Investment Size | Minimum investment RM10 | Minimum loan amount RM10,000 |
| Maximum Investment Size | Limited by cash on hand & ASB investment limit | Limited by borrowing power & ASB investment limit |
| Return | Not leveraged, but higher margin | Leveraged returns, but lower margins |
| Additional Costs | None | - Cost of financing (ASB loan) - Documentation & Management Fees |
| Interest Rate Risk | None | BLR movement will affect the cost |
| Lock-In | No lock-in. Can redeem units for cash at any time. | Lock in period (usually 2 years and above) where units bought using ASB loans cannot be redeemed. But investors may cash out a yearly dividend |
So, is ASB Loan better than ASB Saving?
Let's assume Mr Johan can save RM10k a year to invest in ASB. At the same time, based on his credit profile, his borrowing ability is up to RM200k. The table below is a comparison between using his own savings to buy ASB units without a loan, versus taking an ASB loan for 20 years.
| Year | ASB Savings | ASB Loans (5.5% p.a., 20 yrs) | ||||||
| ASB Unit | Anual Payment | Dividend(5.5%) | Cash Gain | ASB Unit | Annual Payment with interest rate(4.5%) | Dividend (5.5%) | Cash Gain | |
| 1 | 10,000 | (RM10,000) | RM0 | (RM10,000) | 200,000 | (RM15,119) | RM0 | (RM15,119) |
| 2 | 20,000 | (RM10,000) | RM550 | (RM9,450) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 3 | 30,000 | (RM10,000) | RM1,100 | (RM8,900) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 4 | 40,000 | (RM10,000) | RM1,650 | (RM8,350) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 5 | 50,000 | (RM10,000) | RM2,200 | (RM7,800) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 6 | 60,000 | (RM10,000) | RM2,750 | (RM7,250) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 7 | 70,000 | (RM10,000) | RM3,300 | (RM6,700) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 8 | 80,000 | (RM10,000) | RM3,850 | (RM6,150) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 9 | 90,000 | (RM10,000) | RM4,400 | (RM5,600) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 10 | 100,000 | (RM10,000) | RM4,950 | (RM5,050) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 11 | 110,000 | (RM10,000) | RM5,500 | (RM4,500) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 12 | 120,000 | (RM10,000) | RM6,050 | (RM3,950) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 13 | 130,000 | (RM10,000) | RM6,600 | (RM3,400) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 14 | 140,000 | (RM10,000) | RM7,150 | (RM2,850) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 15 | 150,000 | (RM10,000) | RM7,700 | (RM2,300) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 16 | 160,000 | (RM10,000) | RM8,250 | (RM1,750) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 17 | 170,000 | (RM10,000) | RM8,800 | (RM1,200) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 18 | 180,000 | (RM10,000) | RM9,350 | (RM650) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 19 | 190,000 | (RM10,000) | RM9,900 | (RM100) | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 20 | 200,000 | (RM10,000) | RM10,450 | RM450 | 200,000 | (RM15,119) | RM11,000 | (RM4,119) |
| 21 | 200,000 | RM0 | RM11,000 | RM11,000 | 200,000 | RM0 | RM11,000 | RM11,000 |
| (RM200,000) | RM115,500 | (RM84,500) | (RM302,378) | RM220,000 | (RM82,378) | |||
| Total Equity | RM200,000 | Total Equity | RM200,000 | |||||
| Total Profits | RM115,500 | Total Profits | RM117,622 | |||||
If you look at the table above, ASB loans are more profitable than ASB savings because the first dividend given depends on the amount you borrow and you get RM200,000 ASB units as early as the first year. But if ASB savings, dividends are given according to the lowest amount in that year until you have enough RM200.00 ASB units.
Of course, the ASB loan is faster because as early as the first year you can get a loan of RM200,000 ASB units compared to the ASB savings that you have to put in a little until it is enough.
Then we have to look at the amount of cash gain given after you have made the payment for 20 years. If you follow the schedule above, ASB Johan's savings will get as much as RM115,500 but your ASB loan will get RM117,622. The difference is RM2,122 even though the total equity is the same as both of RM200,000. Long story short, as long as your dividend rate is higher than the loan interest rate, you still make a little profit.
But, you have to remember that the ASB dividend rate distributed every year can fluctuate. So, if you feel like the ASB loan is not profitable that year, you can try other investment instruments such as fixed deposit.
So, do you want to invest?
Investing using ASB loans to purchase ASB units is a good choice, as long as you are prepared to fund the loan instalments in the first year. And once you have decided, remember to use out ASB Loan Comparison tool for the easiest and fastest way to get your ASB loan approved!
*The above article is intended for informational purposes only. Loanstreet accepts no responsibility for loss that may arise from reliance on information contained in the articles.
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