Taking out a personal loan can be useful when you need to manage big expenses or urgent costs. To manage your budget it’s important to understand how your repayments are calculated. We’ll explain in  clear, and simple terms how to check how much you’ll pay to borrow money. You can also explore different repayment plans instantly using our personal loan calculator on RinggitPlus.

The Three Parts of Your Loan Repayment

Every loan agreement  is built on three factors. Understanding them is the first step to controlling your debt.

1. Principal: This is the total amount of money you borrow. If you get a loan for RM20,000, that is your principal. A larger principal means a higher monthly repayment.

2. Interest Rate: This is the cost of borrowing money, expressed as a percentage. In Malaysia, personal loan interest rates are typically “flat rates.” That means that interest is calculated on the original loan amount, the principal. Rates may vary based on your income, credit score, the loan amount, and the tenure you choose.

3. Tenure: This is the repayment period, how much time  you have to pay back the loan, usually stated in months or years. A longer loan term might make the monthly payments more affordable, but it also means you’ll end up paying a lot more in interest. On the other hand, choosing a shorter term will cost you more each month, but you’ll clear the debt faster and save on interest. 

Choosing How Much to Borrow 

While a bank may offer you a certain loan amount, it’s best to borrow only what truly fits your needs and financial goals. It’s important to borrow only what you truly need. 

Taking on more debt than necessary can increase your monthly repayments and total interest paid, stretching your finances and potentially causing stress down the line. 

Before deciding on your loan amount, carefully evaluate your actual expenses and budget. 

Ask yourself: 

• What exactly do I need this money for? 
• How much can I comfortably afford to repay each month without compromising other financial goals? 
• Am I factoring in unexpected expenses that might arise during the loan tenure? 

Use a personal loan calculator to experiment with different amounts and tenures, so you can find a repayment plan that fits your lifestyle. Remember, borrowing responsibly helps keep your finances healthy and your credit score intact.

How to Choose the Right Loan Tenure 

How long you want to take to pay off your loan is one of the most important and often overlooked factors when borrowing money . Tenure determines how long you’ll be making repayments and how much you’ll pay in total interest over time. Choosing the right tenure depends on your income, expenses, and how quickly you want to be debt-free.

Short vs. Long Tenure: What You Should Know

Tenure Length	Pros	Cons
Short Tenure (1–3 years)	Lower total interestClears your debt faster	Higher monthly repaymentsCan affect affordability
Long Tenure (5–10 years)	Lower monthly paymentsMay improve approval chances	More interest paid over timeLonger financial commitment

A shorter tenure means you’ll pay off the loan faster and spend less on interest, but the monthly instalments will be higher. On the other hand, a longer tenure gives you more manageable payments each month, though you’ll end up paying more overall.

What to Consider When Deciding on Tenure

Choosing the right loan tenure means looking at your finances realistically, both now and in the future. 

Life changes such as starting a family, switching jobs, or moving home can affect your income and expenses. In these cases, a longer tenure might give you more breathing room with lower monthly payments. Be careful, if you don’t have a solid emergency fund, taking on high monthly payments with a shorter tenure could leave you in a difficult position if unexpected costs arise. 

It’s also a good idea to check if your lender offers better interest rates for shorter loans. Sometimes paying a bit more each month means saving a lot on interest over time. 

Finally, if you decide on a longer tenure, find out if you can make early repayments without penalties. Then, if you have any unexpected financial gains, you can pay off your debt sooner.

Considering these points will help you pick a loan term that fits your lifestyle and keeps your budget healthy.

How Do Banks Calculate Your Monthly Instalment (For Flat Rate Loans)

Most personal loans in Malaysia use a flat interest rate. This makes the calculation straightforward because the interest is charged on the original principal amount for the entire tenure. Your monthly payment remains fixed, which helps with budgeting.

Here’s the simple formula:

1. Calculate Total Interest: Principal x Interest Rate Per Year x Number of Years
2. Calculate Total Repayment: Principal + Total Interest
3. Calculate Monthly Instalment: Total Repayment / Total Number of Months

Let’s use an example. Whether you’re a fresh graduate financing your first car deposit or a young professional funding a side business, the maths is the same.

• Loan Amount (Principal): RM20,000
• Flat Interest Rate: 6% per annum
• Loan Tenure: 5 years (60 months)

Calculation:

• Total Interest: RM20,000 x 6% x 5 years = RM6,000
• Total Repayment: RM20,000 + RM6,000 = RM26,000
• Monthly Instalment: RM26,000 / 60 months = RM433.33

What Is The Difference Between Flat Rate and Reducing Balance Loans?  

While most personal loans use a flat rate, it’s important to understand the alternative so you can make an informed choice.

• Flat Rate: The interest is calculated on the original loan amount (RM20,000 in our example) for the entire tenure. Even as you pay down your debt, the interest charge doesn’t decrease.
• Reducing Balance Rate: The interest is calculated on the outstanding balance of your loan. As you make payments and the principal reduces, the amount of interest you pay also decreases. This method is common for home loans.

Because a flat rate doesn’t account for your shrinking principal, its true cost is higher than it appears. This is where the Effective Interest Rate (EIR) comes in. The EIR reflects the actual cost of your loan by considering how interest is charged on the remaining balance over time, plus any fees. Unlike the flat rate, which applies interest evenly on the full loan amount, the EIR gives you a more accurate annual percentage rate. As a rule of thumb, it can be almost double the advertised flat rate. Always ask the bank for the EIR to understand the loan’s real cost.

How to calculate EIR:
While the exact formula can be complex, here’s a simple way to estimate it from the flat rate:

• Flat Interest Rate (F): The advertised rate as a decimal (for example, 6% = 0.06)
  
• The approximate formula:
  EIR ≈ 2 × F

For example, if your flat rate is 6%, then:

EIR ≈ 2 × 0.06 = 0.12 or 12%

This shows the effective rate is approximately double the flat rate. This happens because with flat rate loans, you’re paying interest on the full original amount throughout the entire tenure, even as you pay down the principal. The EIR reflects the true annual cost when you consider that your outstanding balance decreases over time.

Understanding the Rule of 78 and Its Hidden Costs

If you have a flat-rate loan, your monthly instalment is fixed. How the bank splits that payment between paying off interest and reducing your principal is not.

Many banks in Malaysia use the Rule of 78, a method that makes you pay a larger portion of the total interest in the early stages of the loan. If we take the example loan above this means in your first year, more of your monthly RM433 payment goes to the bank’s profit (interest), and less goes to clearing your actual debt. As the loan progresses, this shifts. More of your payment begins to reduce the principal, and less goes to interest. Because most of the interest is paid early on, settling your loan ahead of schedule doesn’t save as much as you might expect.

The Rule of 78 is being phased out under the Consumer Credit Act. For new loans, fairer interest calculation methods will be used. If you have an existing loan, the Rule of 78 may still apply, which means settling your loan early might not save you as much money as you’d think. Always check your loan agreement.

Common Questions About Your Loan Repayments

Can I Settle My Loan Early?

Yes, but check the “Early Settlement Clause” in your agreement first. Some lenders allow early repayment without any additional cost, while others may impose a penalty fee or require advance notice, especially if you’re repaying during the early part of your loan term. 

Early settlement fees typically range between 0% to 3% of the remaining loan balance. In some cases, lenders waive this fee if certain conditions are met, such as providing a few months’ notice. However, if your loan includes a lock-in period, a charge may apply if you settle within that period. 

Example: Suppose you have a RM10,000 personal loan over 3 years. After 15 months, your remaining balance is RM6,000. If the lender charges a 3% early settlement fee, you’ll pay an extra RM180, making your total payment RM6,180. With a lender that waives the fee, you’d only pay RM6,000. 

What to Consider: Before making an early repayment, request a redemption statement from your bank to confirm your outstanding balance and any applicable charges. Then compare this total with the interest you would otherwise pay for the remainder of the loan. This helps you decide whether early settlement is financially worthwhile.

What If I Make Extra Payments?

Many people assume that paying more than the monthly instalment will help reduce their loan faster or save on interest. However, this isn’t always the case, especially with flat-rate loans, which are common in Malaysia for personal financing and hire purchase agreements.

With a flat-rate loan, the total interest is calculated upfront based on the full loan amount and the entire loan tenure. This means that making extra payments usually doesn’t reduce the interest or shorten the loan period automatically. In most cases, the extra amount is simply used to offset future monthly payments, rather than directly reducing your principal.

If your goal is to pay off your loan faster or lower the total interest, it’s important to speak to your bank or lender first. Ask them how extra payments are treated under your loan agreement. Some lenders may allow you to apply those payments directly to the principal if you submit a formal request. Others may offer the option to restructure your repayment schedule or provide a rebate if you’re under an Islamic financing product.

The key takeaway is to not assume extra payments will benefit you unless you’ve confirmed how they’ll be applied. Always check with your bank and, if possible, ask for written confirmation. That way, you can be sure your money is working the way you intend.

Will My Monthly Repayment Ever Change?

For a standard flat-rate loan, it shouldn’t. Your instalment is fixed. It can change under three conditions:

• Variable Rate Loans: Some loans, especially home loans, have variable interest rates tied to indicators like the Overnight Policy Rate (OPR). This means your monthly repayment can go up or down if interest rates change. Variable rate personal loans are rare but do exist, so it’s worth checking your loan agreement.
  
• Late Payments: If you miss a payment, your lender may charge late fees or penalties, which can increase the amount you owe that month.
  
• Loan Restructuring: If you’re facing financial difficulties, you might be able to renegotiate your loan terms with your bank. This could lead to a change in your monthly instalment, either higher or lower, depending on the new agreement.

What About Other Fees?

It’s important to ask your lender about any upfront fees before you sign your loan agreement. Common charges may include stamp duty, which is usually around 0.5% of the loan amount. This cost is typically deducted from the loan disbursement, so you may receive less cash than the loan amount approved.

These days, many banks no longer charge processing fees for personal loans, but some lenders might still have other upfront fees or administrative charges. Always clarify with your bank exactly what fees apply and how they affect the amount you’ll receive.

Your Final Checklist Before Signing Any Personal Loan

Calculating the monthly repayments is just one step. Before you commit to years of debt, you need to be brutally honest with yourself. Your financial habits matter more than the numbers themselves.

1. Ask “Why?” Relentlessly

Take a moment to ask yourself why you need this loan. Is it to manage existing debts more effectively, cover an unexpected expense, or invest in something important? Understanding your reasons helps you borrow wisely and stay focused on your financial goals. Remember that a loan can be a helpful tool when used thoughtfully, not just a quick fix.

2. Get The “All-In” Number

Ask the bank one simple question: “If I borrow RM20,000 for 5 years, what is the exact amount of cash that will enter my bank account, and what is the total amount I will have paid you by the end of the 5 years?” This cuts through all the jargon, giving you the true cost in Ringgit and Sen.

3. Check Your CCRIS Report

Your CCRIS report is like your financial passport in Malaysia. It shows your current credit obligations and repayment history. Before applying for a new loan, it’s a good idea to check your CCRIS report so you know what lenders will see.

Keep in mind that when you take on a new loan, it will be recorded on your CCRIS report. Make sure you are confident you can make every payment on time throughout the loan tenure. Missing payments can negatively affect your credit score and make it harder to get loans in the future.

If you’re unsure about meeting your repayments consistently, it might be better to hold off on applying until you’re in a stronger financial position.

4. Plan Your Escape Route

Taking a loan is a step toward achieving your goals, but it’s smart to also plan how to repay it efficiently. While a longer loan tenure with lower monthly payments might feel comfortable, paying off your loan faster can save you money on interest and help you become debt-free sooner.

Before you sign, think about ways you could pay a little extra whenever possible. Even adding an extra RM200 a month toward your loan principal can make a big difference. The sooner you pay it off, the sooner you gain financial freedom and peace of mind.

Looking for the Right Loan?

Taking out a personal loan is a big financial commitment, so it’s important to understand how much you’ll repay each month and over the entire loan period. By carefully considering how much to borrow and choosing the right loan tenure, you can strike a balance between affordable monthly payments and minimising the total interest paid.

Remember to take a close look at your current and future financial situation, including any upcoming changes that might affect your budget. Use tools like a personal loan calculator to compare different circumstances, and don’t hesitate to ask your lender about fees, early repayment options, and effective interest rates.

Head to our Personal Loan Comparison page to find options that match your needs. And if you’re not sure how to improve your chances of approval, our step-by-step loan application guide can help.

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• TAGS:
• How-To
• loan
• Loan Approval
• Tenure