What to know about personal loans in Malaysia
[This is a sponsored article with Citibank.]
Seeing how easy it is to access them, it’s no surprise that some may jump into this pledge for quick cash due to misconceptions about how they work.
At the same time, in the current economic climate, personal loans can be a viable option to consider under the right circumstances. Here’s a breakdown of the key information you should know about them.
What is a personal loan?
In short, personal loans are amounts of money that you can borrow for a variety of reasons, and they are offered by banks, credit unions, or online lenders.
There are two types of personal loans: secured and unsecured. A collateral is required for secured loans while unsecured loans do not require collateral.
Dictionary time: The guarantees are assets that lenders accept as collateral for the loan, and it can be a car, house, stocks, jewelry, collectibles, future paychecks, etc.
Some common reasons why people take out personal loans are for medical issues, debt consolidation, home renovation or renovation costs, marriages and education.
According to the team of Citibank, the majority of their clients apply for personal loans due to emergencies and the need for cash. Apart from that, there are borrowers who have taken out personal loans for home improvement, education, etc.
Benefits personal loans
1. Help structure and plan your budget and finances
Personal loans have a flexible term that comes with fixed installments, which is helpful for the borrower to plan their payment schedule.
For Citi personal loans, you can choose from 24, 36, 48 or 60 months as the repayment term, but note that the longer the term, the more interest will have to be paid over the life of the loan.
There is a common misconception that a personal loan can negatively impact your credit score. However, if you are able to follow a consistent payment plan, this won’t be a problem.
2. Can be used for almost anything
Of all the types of loans, personal loans are arguably the most soft in terms of what you can use it for. It’s not tied to any type of commitment you’re paying for, unlike auto loans, mortgages, student loans, etc.
The general rule is to never take out a personal loan if you don’t have a solid repayment plan, and think about how your expected income would match your payment schedule.
3. Allow debt consolidation and save on interest
Because you can use personal loans for almost anything, some people consolidate all their debts and use a personal loan to pay off all of their collective debts at once. This way you only have one monthly payment to track instead of multiple payments to different creditors.
In addition, personal loans could save you moneyy if its interest rate is lower than that of other debts to which you were linked, in particular credit cards. This means that you can also reduce the amount you pay for the monthly installments.
Citi personal loans have competitive rates ranging from 5.33% to 9.80% per annum. A quick search for other options revealed rates ranging from 3.99% to over 18%. To begin with, you need to be clear about the terms and conditions, whether the rate is applicable to a certain amount of occupancy or loan, and also take note of the applicable fees.
4. Access to fast cash with no collateral involved
As mentioned, personal loans are useful in times of emergency where one may not have emergency funds or insurance to cover unforeseen expenses like medical bills.
However, with great power comes great responsibility, and borrowers are discouraged to use personal loans for luxury or non-essential purchases, even if you are in dire need of a vacation (once we can travel safely).
Personal loans generally have quick approvals, and in the case of Citibank, instant conditional approval as well. Citibank personal loans are also unsecured so there is no collateral involved. Since there is no collateral or guarantor, you don’t have to risk losing valuable property like your car or house. However, the late payment penalty would be 1% pa on the overdue amount.
Example: Alif took out a loan of RM 10,000 and has a monthly repayment of RM 1,000. If he is 11 days late on his first scheduled payment, he has to pay an additional RM 0.30 which is his late fee. This is calculated by taking 1% of his payment due, dividing it by 365, and multiplying it by 11, which is the number of days overdue.
To apply, your loan will need to be a minimum of RM5K, and “new to the bank” customers can get up to RM120K while existing customers can borrow up to RM150K.
Citibank requires a minimum income 4,000 RM per month or 48,000 RM per year to qualify as an applicant, employee or self-employed person. If you are self-employed, your business must be established for at least 2 years and applicants must be between the ages of 21 and 60 at the time of loan maturity, and be citizens or PRs working in Malaysia.
Disadvantages personal loans
1. Can lead to potential damage to credit score
In terms of credit score, personal loans could be a double-edged sword. If you’re not good at making regular payments, taking out a personal loan could damage your credit score.
Therefore, it is important to consider whether your payment history has been characterized by regular late payments or non-payments.
It’s also important to remember that if you take out a personal loan and make multiple late payments, your damaged credit score could. reduce your borrowing power for other lines of credit in the future or even request another financial product.
2. Increase in debt due to insufficient financial discipline and literacy
Another double-edged sword in personal loans is that it requires that you have good financial discipline with monthly payments; if you are a bad debtor, this type of loan could lead to unnecessary debt.
Additionally, while consolidating all of your debts into one is a more efficient way to manage your finances, it is crucial that you check if interest rates are actually lower only if you have paid to several creditors. Otherwise, you will end up paying more interest in the long run.
That being said, you should keep in mind not to take out personal loans for luxury goods that you cannot afford with what you already have. At the end of the day, it’s no fun getting into debt just for the fun of it.
3. Has potentially heavy financial penalties or legal ramifications
Now the downside of not having any collateral involved is that you cannot trade in your car or house with the lender if you are having difficulty making your payments.
First, your interest rates will be continue to compose. Some banks in Malaysia may also increase your interest rates to make you take your repayments more seriously.
Worse yet, your creditors can file for bankruptcy against you and you could lose your assets as well as your right to leave the country. Additionally, you could be sued in which the bank can garnish your wages, place a lien on your property, and freeze all or part of your money in the bank.
4. Includes early settlement fee
Because you will be billed if you pay off your debts early, you will need to exercise financial discipline and properly plan your budget for at least the next two years (if you choose the shorter tenure period).
If you want to repay the entire outstanding amount up front, you must be prepared to cover the cost of the prepayment charge. These details and many more will be part of the terms and conditions, which you should know before signing up for a loan plan.
On closing: Comes with fixed payments
We cannot classify this as a direct advantage or disadvantage as it depends on your circumstances and spending habits.
Essentially, personal loans are suitable for clients who want to get a lump sum and have a clear view of how much they can afford to pay off monthly. If you don’t fall into this category, personal loans might not be the best option for you.
Looking for Alternatives: If you’re looking for credit cards to make payments on your purchases, Citibank currently offers a Citi Cash Back Card, where users can earn up to 10% cash back on Grab, groceries, meals, and gas when you hit minimum monthly spend.
In addition to this, there are also Citi Rewards points at Taobao, Lazada, Amazon, large supermarkets and department stores under their Citi Rewards Cards.
New Citi credit card holders who wish to enroll are also eligible for an RM500 Touch ‘n Go eWallet credit. The campaign is valid until August 31, ’21.
The main thing to remember is to make sure that you are applying for a personal loan with a solid payment plan, and that you are not to take out this loan for non-essential or non-urgent reasons like luxury or vacation. Being careful with your money and debt is something everyone should take more seriously now than ever before.
- You can read more about Citi personal loans here.
- Disclaimer: The above content is based on the opinion and research of the author. Before making any major financial decisions, be sure to do your due diligence.