Q: What happens if I pay my personal loan installment late?

Always strive to make full payment of your installment before or on the due date to avoid being penalised by the bank. That’s not all, your credit score will take a turn for the worse. Generally, all banks will impose a 1% fee, whereas non-banks will charge around 8% fee, calculated daily until you pay it off . For example: Overdue amount: RM875 Numbers of days overdue: 10 Late payment charge: 1% p.a. RM857 x 1% x (10 ÷ 365 days) = RM0.23 In case you are on the verge of defaulting on your personal loan, you must immediately get in touch with the bank to discuss a possible recourse on your repayments. Alternatively, you can engage Agensi Kaunseling dan Pengurusan Kredit (AKPK), a debt management program by Bank Negara Malaysia that offers free services on money management, credit counselling and debt restructuring for individuals.

Question 1

How does personal loan work?

Accepted Answer

Put simply, a personal loan is a sum of money with interest lent by the bank to a borrower for a fixed period. The loan must be paid back in fixed amount installments, every month until the end of tenure.

It is quite straightforward until you come across some terms and jargons that you are not familiar with. Don't worry, here are some commonly used terms to describe personal loans:

Per annum (p.a.): the interest rate will be charged on a per-year basis. If a RM10,000 loan is at 5% p.a. interest, the interest charge is RM500 per year.

Now, if the repayment tenure is stretched to 3 years, the interest will become RM1,500 (RM500 per year x 3 years).

Principal: the amount of loan you applied for. The interest rate will be calculated based on this amount and added on top of it. Going with the example above:

Principal + Interest = Total Borrowing Amount

RM10,000 + 5% p.a. =RM10,500

Interest rate: interest rate is charged on the loan amount by the bank to the borrowers for using its money.

It’s the same concept as deposit; you put money in a savings or current account, the bank will pay you interest or profit for using your money.

Tenure:

The loan repayment period. Choosing the right tenure is important for your personal finances.

Shorter loan period comes with higher monthly installment amount, whereas longer loan period comes with higher interest rate.

Installment: you need to pay back your personal loan every month until the end of tenure.

Installment amount is fixed, which is calculated on the total borrowing amount then is divided by the total numbers of months.

Penalty: this is a fee a bank will charge on your overdue amount for being late on your repayment.

Default: the term to describe an event of non-payment of a personal loan for over 3 months.

In this situation, the bank will usually impose a higher finance charge and/or take a legal action against you.

Under this circumstance, you will face difficulty in securing any loans in the future as a result of poor credit score.

In fact, your repayment history will stay in CCRIS database for up to 12 months.

Question 2

What type of personal loan should I apply?

Accepted Answer

Now you have caught up with some of the personal loan basics, this is the time to answer the question of preferences.

By doing a personal loan comparison, you can filter down the best personal loan to apply. The interest rate should not be the only factor when comparing personal loans, but your preferences too, such as:

What is the difference between secured and unsecured loan?

Should I get a conventional or Islamic loan?

Do I need a Takaful or Insurance coverage?

Secured loan vs Unsecured loan

Secured loans

Need collateral or security such as fixed deposit, property, unit trust, other assets

Guarantor is required, with or without an asset, depending on eligibility

Unsecured loans

No collateral or security required

No guarantor, except when you don't meet the eligibility requirements

Conventional loan vs Islamic loan

Conventional loans

Based on the principle of moneylending, where the bank gains some profits for lending money to borrowers

Charge an interest rate on the total loan amount

Can be used for any purposes that is legal in the eyes of the law

Borrower bears all risks associated with the loan

Compound interests when payment is overdue

Islamic loans

Follow the Shariah contract of financing that avoids exploitative gains such as riba’ or usury

Charge a profit rate on the total financing amount

Can be used for any purposes that are permitted (halal) by the Shariah laws

The bank bears some of the risks to earn returns

Does not compound profits when payment is overdue

With Takaful or Insurance vs Without Takaful or Insurance

With Takaful or Insurance coverage

Optional

Liability coverage that helps settle all unpaid balances in the event of death or total permanent disability of the borrower

Slightly expensive as the coverage is added on the total borrowing amount

Without Takaful or Insurance coverage

Optional

Borrower/beneficiary is responsible to cover the unpaid balances in the event of death or total permanent disability

You receive 100% of the total borrowing amount

Question 3

Do I need to apply for a personal loan?

Accepted Answer

Everyone has goals to achieve in their lives and a lot of times, they require money to kickstart the journey. We can gain money from any means possible such as employment, selling of products or services, own savings, as well as loans.

Some people are lucky enough to fund their goals with one or more combinations of the above methods. But, what about others who has limited options or whose limited options are not viable?

Oftentimes, they shy away from the last option, which is loan. If we look at this objectively, applying for a personal loan is practical for several reasons: education, investment, emergency cash, funding for business, buy a property (house, car, equipment etc), debt consolidation.

Question 4

How much can I borrow?

Accepted Answer

The typical loan amount you can borrow from banks is ranging from RM5,000 to RM200,000. This amount is also known as the principal amount.

Once you have decided on your principal loan amount, you need to choose a tenure that suits your financial capacity.

RinggitPlus has a calculator where you can calculate your monthly repayment easily by indicating your borrowing amount, monthly income and tenure of choice.

However, this personal loan calculator does not take into account your other monthly commitments such as car loan, home loan, credit card, student loan etc, which the bank will also consider before approving your applied loan amount.

To better manage your expectations (such as high loan margin, low interest rate, fast approval), you need to check if you can afford to pay your total monthly commitments by determining your debt-service ratio (DSR).

Question 5

How much can a bank loan me?

Accepted Answer

DSR is a tool to measure your available cashflow after meeting your debt obligations. Banks use this calculation to see if you have enough money to pay your monthly installment via this formula:

Total Monthly Commitments / Total Monthly Income x 100% = DSR

RM1,500 / RM3,000 x 100% = 50%

There is a consensus on optimum DSR level to increase the chances of loan approval: your total monthly commitments should not exceed your total monthly income.

In the example given above, the total loan commitments are 50% of total monthly income, which means a borrower is allocating half of his/her monthly income on debt servicing alone, with little room to save, spend and invest (if any).

In this situation, the bank will usually reduce the loan amount to consequently reduce your DSR level. You can do your own DSR calculation prior to loan application to increase the chances of approval.

Question 6

What documents to prepare when applying for a personal loan?

Accepted Answer

To speed up your loan application process, make sure you have compiled all of the required documents.

The type of document will vary from bank to bank, depending on your employment type. All in all, you can find the general requirements in the table below:

General Loan Application: application form, valid proof of ID/passport, resident proof, income proof (latest 3 months salary slip, latest BE form with official tax receipt, latest 6 months, 1 year bank statement)

Loan Application for Salaried Individuals: application form, valid proof of ID/passport, photo (passport size), resident proof, income proof (latest 3 months salary slip, latest BE form with official tax receipt), others (current working contract, Payment track record & sanction letter for any existing loan)

Loan Application for Self-employed: application form, valid proof of ID/passport, resident proof, income proof (latest 2 years income tax returns), others (copy of business registration, 3 years salary statement/shop establishment, Documents to prove office address and ownership i.e utility bill)

Loan Application for Senior Citizen/Pensioner: application form, photo (passport size), resident proof, income proof (pension returns or bank statement)

Question 7

Where can I apply for a personal loan?

Accepted Answer

Two ways you can apply for personal loans in Malaysia: offline and online.

On offline channels, you can walk into the bank's branch of choice, speak to a loan officer, fill up the application form, present your documents and submit. Other way is by calling up the bank's customer service contact center.

This way, it gives you a more personalised service, although the downside is, you may not have the flexibility of time and money.

On online channels, you can compare and apply for personal loans conveniently. You can also use some of the tools to find out your credit score, calculate loan affordability, download statements and many more, all at your fingertips.

Question 8

Am I eligible?

Accepted Answer

To qualify for a personal loan application, you must first meet the eligibility criteria as set out by the bank, including but not limited to:

Nationality: Malaysian, permanent resident or foreigner

Age: 21 to 60 years

Employment type: Salaried employee (public/private sector) or Self employed

Income type: fixed, contract, commission basis

Residential status: own house, rented, living with family/relatives, company provided etc

Tips: Your lifestyle is also a contributing factor to your loan approval. If the bank spots an inconsistency in your employment histories, salary and disposable incomes, and places of residence, you may not be a favourable borrower.

Question 9

What is a credit history?

Accepted Answer

A credit history shows a record of your debt repayment, which indicates your ability to commit to loan repayment.

By referencing to the Central Credit Reference Information System (CCRIS), banks can gain insight into your previous repayment habit.

This credit report stores all your credit histories from all financial service providers in Malaysia for up to 12 months.

Question 10

What is a credit score?

Accepted Answer

A credit score, on the other hand, is a 3-digit numerical rating that evaluates borrowers' credit worthiness and is based on their credit histories.

A good credit score can increase your chances of getting a loan approved withlower interest rates and faster loan approval.

High credit score means you are favourable by the bank, whereas lower credit score means your application may not be favourable or get rejected.

CTOS Data Systems Sdn Bhd (CTOS) is a privately-run credit agency that collects data from public sources and is also referenced by the banks when approving a personal loan.

Question 11

When is my personal loan monthly installment due date?

Accepted Answer

Your first monthly installment payment will commence one month after receiving your approved loan into your bank account.

As per your personal loan’s terms and conditions, your monthly installment due date can fall either on the first or in the middle of the month.

If, at any time of the installment period, you are not able to commit to the full amount, you can pay a minimum amount as recommended by the bank.

Doing so will save you from being penalised for late payment, however, attract finance charges between 15% - 18% p.a. on the remaining unpaid balances.

Question 12

What happens if I pay my personal loan installment late?

Accepted Answer

Always strive to make full payment of your installment before or on the due date to avoid being penalised by the bank. That’s not all, your credit score will take a turn for the worse.

Generally, all banks will impose a 1% fee, whereas non-banks will charge around 8% fee, calculated daily until you pay it off. For example:

Overdue amount: RM875

Numbers of days overdue: 10

Late payment charge: 1% p.a.

RM857 x 1% x (10 ÷ 365 days) = RM0.23

In case you are on the verge of defaulting on your personal loan, you must immediately get in touch with the bank to discuss a possible recourse on your repayments.

Alternatively, you can engage Agensi Kaunseling dan Pengurusan Kredit (AKPK), a debt management program by Bank Negara Malaysia that offers free services on money management, credit counselling and debt restructuring for individuals.

Question 13

Can I settle my personal loan outstanding balances off early?

Accepted Answer

You have the option to settle off your outstanding loan balances before the end of tenure, subject to terms and conditions of your personal loan.

Tips: A personal loan is usually calculated on a flat rate basis; therefore, a partial settlement is not advisable. If you have double paid your monthly installment for the month, the bank will deem it as an “Advance Payment”, which will not reduce your interest payment and the principal amount for the month.

It is important that you inform the bank in written notice prior to your personal loan early settlement. An Early Settlement fee may or may not be charged, depending on the personal loan agreement.

Question 14

How to make my monthly installment payment?

Accepted Answer

You have the flexibility to make your monthly installment payment in various channels such as follows: online banking (IBFT or IBG transfer, bill payment etc), standing instruction (auto deduction), cash deposit, over the counter

Tips: Earn cashback on your interest payments when you make a prompt repayment every month throughout the tenure. Check out these top personal loans with cashback program:

RHB Easy-Pinjaman Ekspres

CIMB Cash Plus

Hong Leong Personal Loan

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