Personal loans are a good way to get cash on the double for
whatever you may need it for. But for many, the need may come at a time where
they are simply too hard-pressed to pay much attention to terms and conditions.

The good thing about personal loan products is that they
seldom differ, regardless if they are an [AmBank personal loan](https://ringgitplus.com/en/personal-loan/AmBank-AmMoneyLine.html) or from other banks. For almost every personal loan; there are only five salient
questions you need ask yourself and the bank in question to get the information
you need to make a decision.

#1: Is a personal loan necessary?

Personal loans can come with quite a few fees, charges and
some high interest rates. Consider if there is no other option besides a personal loan at present. If it is not an emergency; consider saving up over a
period of time or if that isn’t an option; refinancing property could provide
additional cash at a lower interest rate (but you will still be charged legal
fees for a new loan agreement!).

Credit cards may have a higher interest rate but there is
the added flexibility of repaying everything within a shorter period without a
penalty fee.

Before even considering the technicalities of a personal
loan, ask yourself if you’ve truly exhausted every other way to obtain the
money.

#2: Do I need security/particular relationship with the bank to qualify?

For some easy personal loan products; loans are only given to
those with a fixed deposit, investment fund, unit trust or some other account
(such as a savings or credit card) with the bank in question. Sometimes it
isn’t so much a pre-requisite for approval but a way to get a loan with a lower
interest rate.There are also loans specially for civil servants or government-linked company workers. Find the best loan for you.

#3: How much interest will I be paying?

For most people, loan tenures are unlikely to be just a year
and thus, it will be important to consider how much interest you will be paying
for the whole duration of the loan.

New Bank Negara guidelines have reduced tenures of personal
loan financing to 10 years. However, most loans to non-government sector
employees are not affected as tenures are usually capped at 7-8 years. Even at
this number; the level of interest paid for a 6 year loan can be extremely
high.

Typically, a loan amount of RM10,000 with a 9% p.a. interest
rate will cost you the following amount in interest depending on 2, 4 or 6
tenure.

Rate	9%
Loan amount	RM10,000
		24 months	48 months	72 months
Principal repayment		RM416.67	RM208.33	RM138.89
Interest payment		RM75	RM75	RM75
Monthly repayment amount		RM491.67	RM283.33	RM213.89
Total interest paid		RM1800	RM3600	RM5400

For each year, the interest rate will be calculated based on
the opening amount and not the remaining balance for most personal loans[1].
As such, you will be charged the same amount of interest every year no matter
how much of the principal you’ve repaid. As illustrated above; a six year
tenure for an RM10,000 loan is charged interest up to more than half the
borrowed amount. However, the repayment monthly only differs by a small amount.
Paying off your loan in two years saves you RM3600[2].
Stretching out your loan for a longer tenure can make the monthly payments more
affordable but total cost of the loan goes up significantly.

Here’s a graphical look at the reduction of monthly
repayment versus the increased interest rate:

#4: How much can I afford to repay every month?

Looking at the interest charged above; if you can afford to
repay your loan quickly, it would be advisable to do so. Consider all
commitments. However, if the minimum is all you can afford to repay; it will be
inevitable to choose the longer repayment schedule: paying more interest but
with a lower risk of defaulting.

#5: What other fees and charges will I incur?

Many are shocked to find that the disbursed loan amount is
lower than what they had applied for after deducting the banks ‘fees and
charges’. If you were to apply for a loan at exactly the amount you require;
the shortfall may cause some inconvenience. There may also be penalties for
early settlement or late payment. Some banks even require that you take out
Takaful insurance on the loan and this will cost you in insurance premiums. Always
check the bank terms for one or more of these most common fees and charges:

1.
Processing fee

2.
Stamp duty

3.
Early termination fee

4.
Late payment penalty fee

5.
Insurance fees

Personal loans can become an even bigger burden than any
other loan product because of late payment fees and high interest rates. Always
consider these four vital points before signing on the dotted line.

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[1]
Very few personal loans work on a reducing balance method. Do check with the
bank of choice which method they would employ to calculate your interest.

[2] Based on a comparison with a six
year loan.

 

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• Loan Repayment