A personal loan is an unsecured loan borrowed from a bank, credit union or online lender that you can use for any reason you have. Please be informed that you do not need any form of collateral for an unsecured loan. The tenure of the said loan can go up from 1 to 10 years and will have a set interest rate for a set amount of time. Repayment wise, you will have to pay monthly instalments, which will include the principal amount and the interest rate that is added.
Personal loans are unsecured loans and are therefore not protected by any form of collateral, so if you happen to default on the loan, the lender is not able to automatically take your assets. Instead of having your property as a form of collateral to secure the loan, the bank looks at your creditworthiness and income. Meanwhile, a secured loan is protected with collateral (most of the time it is your property), it may have a lower interest rate but it can be riskier as you might lose your collateral if you are not able to make payments on time. However, if you would like to loan more than the bank approved, it may be possible to get a higher loan if you have collateral or a guarantor, but you need to check this in either the product disclosure sheet or terms & conditions or with a representative from the bank.
A conventional loan follows the Conventional Financing Principles where lenders lend to borrowers to make a profit from the interest charged on the principal amount. For property loans, the borrower pays interest on the outstanding principal amount. Interest rates can be fixed or based on a floating rate (e.g. BLR, KLIBOR).
An Islamic loan follows the Islamic Financing Principle which avoids interest-based transactions (Riba), and instead introduces the concept of buying something on the borrower’s behalf and selling it back to the borrower for a profit. In place of interest, a profit rate is defined in the contract. Like Conventional Financing, profit rates can be fixed or based on a floating rate (e.g. BFR).
Interest rates in Malaysia are usually charged on a flat rate basis. The flat interest rate refers to the type where the interest is charged on the original amount, thus having nothing to do with what was paid initially. It depends on the lender what the interest rate is if you take a look at our calculator you can see which lender has the best interest rate for you. For more information on interest rates, click here.
It's possible but can be very hard to get a personal loan if you're unemployed because all the banks will request to provide proof of income. Usually, the best loan terms and rates are often reserved for customers with a good credit history, and for those in employment.
Generally, banks are reluctant to lend to students. This is because of several reasons: most students do not have a credit history yet so the bank does not know your history with repayments also there is no current income so there is no proof that the loan can be paid back on time and as they're unlikely to be employed any time soon so they may struggle to make repayments on time.
A short-term loan is one which is scheduled to be repaid in less than a year and the interest rate for this type of loan will usually be higher than a long-term loan. However, at the end of the term, you pay less interest than the longer duration loans. This might be interesting when you need to finance minor temporary needs, therefore, it is scheduled to be paid back within several months, for example, if you have some cash flow issues.
There are several factors that decide how much you can borrow. The amount depends on the bank you are applying with but that’s not the only thing. Your salary and credit score are really important. But even if you have a high salary your application can still get rejected due to other existing debts or a poor payment record. For example, a late payment on a credit card debt. If you apply for multiple loans at once this can also result in a rejection because the bank might feel that you need money fast, this would be a risk for the bank. If your application is approved, it is not necessarily the amount you applied for, this can also be lower. You can talk with a representative from the bank if you are unhappy with the approved amount, to see where the issue is and to look at other options.
It is very easy to check your eligibility for an Islamic personal financing via Loanstreet! You can click here to apply.