Types of Personal Loan in Malaysia

Personal loans in Malaysia are unsecured loans provided by banks and financial institutions to individuals for various purposes like debt consolidation, medical emergencies, home renovation, or travel. Fixed interest rates, predetermined loan tenure, and monthly repayment schedules typically characterise them. Personal loans offer a way for individuals to obtain financial assistance without collateral.

There are different types of personal loans, including secured, unsecured, conventional, and Islamic personal financing. Understanding these varieties helps borrowers choose a loan type that suits their repayment capacity and financial goals.

Financial institutions in Malaysia offer various customisation options for personal loans, such as different loan amounts, tenure, and repayment flexibility. Evaluating the performance of a personal loan, such as by comparing interest rates, monthly repayments, and the total cost of borrowing, is vital for individuals to manage their financial obligations effectively.

Bank Negara Malaysia sets legal and regulatory guidelines to comply with when obtaining a personal loan. You need to understand the costs involved, including the interest rates, processing fees, and other charges. This will help borrowers make informed decisions and select the most cost-effective loan option.

The primary stakeholders in the personal loan process include borrowers, lending institutions, credit bureaus, and regulatory authorities. This will ensure effective processing, approval, and management of personal loans. Knowledge about different loan types, legal compliance, and financial management is vital for all parties involved.

Comparing different types of personal loans helps individuals understand the benefits and drawbacks associated with each type. For instance, Islamic personal financing may appeal to those adhering to Sharia principles, while fixed-rate loans could be preferred by individuals seeking stable repayment schedules. By comparing different personal loan types’ features, costs, and compliance requirements, borrowers can identify the most suitable and cost-effective personal financing option in Malaysia.

Secured Loan

A secured loan is a type of loan where the borrower provides an asset as collateral to the lending institution. The asset, which can be a property, a vehicle, or other valuable items, secures the loan, reducing the risk for the lender. If the borrower defaults on the loan repayments, the lender has the right to seize and sell the collateral to recover the loan amount. This arrangement typically allows for lower interest rates and higher borrowing amounts compared to unsecured personal loans.

Secured loan emerges as a borrowing option that necessitates the provision of an asset as collateral to ensure repayment. This type of loan mitigates the risk for the lender, granting them the right to seize the asset in the event of default. Typical assets used as collateral include real estate, vehicles, or other valuable items.

Since the risk for the lender is lower, secured loans often come with lower interest rates and more lenient lending criteria. However, borrowers should proceed with caution, as failure to repay the loan could result in the loss of their asset. Thus, secured loans form a significant part of the personal loan landscape in Malaysia, providing an avenue for individuals to access larger sums of credit.

Example of secured personal loan

Secured personal loans require the borrower to provide a form of collateral or a guarantor to secure the loan. The collateral can include assets like cars, homes, fixed deposits, structured investments, or unit trusts. Here are some examples of secured personal loans available in Malaysia:

Al Rajhi Personal Financing-i Secured Against Gold

• Profit Rate: 3.52%
• Effective Rate: 6.57%
• Monthly Payment: RM 196
• Total Repayment: RM 11,760
• Minimum Loan Amount: RM 10,000.00
• Maximum Loan Amount: RM 500,000.00
• Tenure: 12 to 60 months
• Age Requirement: 25 to 60 years old
• Special Requirements: Takaful Insurance Required, for non-Malaysian residents with a gross income of RM 15,000 and above.

Al Rajhi Personal Financing-i Secured By Term Deposit

• Profit Rate: 3.52%
• Effective Rate: 6.57%
• Monthly Payment: RM 196
• Total Repayment: RM 11,760
• Minimum Loan Amount: RM 5,000.00
• Maximum Loan Amount: RM 500,000.00
• Tenure: 12 to 84 months
• Age Requirement: 25 to 60 years old
• Special Requirements: Takaful Insurance Required, Term Deposit is on Auto Renewal.

Secured loans by Avex Credit in Malaysia offer the option to use residential and commercial properties such as shop lots, factories, and lands as collateral. They provide up to RM 5 million in financing with low-interest rates and flexible repayment terms. These examples showcase the variety of secured personal loans and the types of collateral accepted by different financial institutions in Malaysia.

Unsecured Loan

An unsecured loan is a type of loan where the borrower does not provide any asset as collateral to the lending institution. Unlike secured loans, the lender has no claim to the borrower’s assets if they default on repayments. The approval, interest rates, and loan amount for unsecured loans are typically based on the borrower’s credit history and financial capability.

Unsecured loans usually come with higher interest rates to offset the increased risk for the lender. It is based on the borrower’s creditworthiness, as the lender has no guarantee of repayment aside from the borrower’s word.

This type of personal loan is popular in Malaysia due to its convenience and speed of approval. However, borrowers must have a good credit score before applying for an unsecured loan, as a low score may result in a rejected application or an even higher interest rate.

Furthermore, failure to meet the repayment terms can lead to serious credit consequences. Therefore, responsible borrowing is key when considering this type of loan.

Example of unsecured personal loan

Unsecured personal loans in Malaysia are those that do not require collateral or a guarantor, unless the borrower doesn’t meet the eligibility requirements. Here are some examples of unsecured personal loans in Malaysia along with their features:

Alliance Bank Personal Loan

• Interest Rate: 4.99% p.a. to 8.70% p.a., depending on the loan amount and period
• Loan Amount: RM5,000 to RM200,000
• Tenure: 12 to 84 months
• Eligibility: Malaysian or permanent residents working and residing in Malaysia, aged 21 to 65 years old, with a minimum monthly gross income of RM3,000.

RHB Personal Loan

• Interest Rate: 7.05% p.a. to 13.83% p.a.
• Loan Amount: RM2,000 to RM150,000
• Tenure: 12 to 84 months
• Eligibility: Malaysian and private-sector employees, aged 21 to 60 years old, with a minimum monthly gross income of RM1,500.

Hong Leong Personal Loan

• Interest Rate: 5.50% p.a. to 7.50% p.a.
• Loan Amount: RM5,000 to RM250,000
• Tenure: 24 to 60 months
• Eligibility: Malaysian and private-sector employees aged 21 to 60, with a minimum monthly gross income of RM2,000.

Various banks in Malaysia offer these loans. It caters to different financial needs and eligibility criteria. While the interest rates and loan amounts vary, the commonality is that they do not require collateral, making them accessible options for individuals needing financial assistance.

Conventional Loan

A conventional loan refers to a standard loan agreement where a borrower receives a fixed amount of money from a lending institution and is obligated to repay the loan, along with the agreed-upon interest, over a specified period through scheduled monthly instalments. Unlike Islamic loans, conventional loans operate on an interest-based model, which is calculated on the principal amount lent to the borrower. Conventional loans, which are based on a fixed interest rate and standard lending criteria, offer stability for borrowers but also necessitate strict adherence to repayment schedules.

These loans are typically offered by banks and other financial institutions, and they come with a fixed repayment period, usually ranging from one to ten years. Conventional loans are popular due to their predictability, which allows borrowers to manage their budget effectively. However, they do not offer flexibility in terms of repayment.

If a borrower fails to meet the repayment schedule, penalties may be incurred. It is advisable for individuals considering a conventional loan to carefully assess their ability to meet the repayment terms before committing.

Example of conventional personal loan

Conventional personal loans are based on money lending, where the lender lends money to the borrower and earns a profit from the interest charged. The interest could be at a fixed or floating rate, and the usage of the borrowed money does not have to adhere to religious principles such as those in Islamic financing.

One example of a conventional personal loan in Malaysia is offered by Maybank:

Maybank Personal Loan

• Loan Amount: RM5,000 to RM100,000
• Interest Rate: 9% to 11% p.a., depending on the loan amount
• Loan Tenure: 1 to 6 years (12 to 72 months)
• Eligibility: Malaysian citizens aged 21 to 60 years old with an annual income of RM30,000 or more
• Features: This loan does not require any collateral or guarantor, has fixed monthly repayments, no handling fees or charges, and no stamping is required. The acceptance of the loan is automated once Maybank credits the approved amount into the borrower’s savings or current account.

Conventional personal loans in Malaysia are typically used for various purposes, including purchasing luxury items such as new mobile phones or household items. The loan amounts range from as low as RM3,000 to RM150,000. Tenures of the loan stretch from one to seven years.

Islamic Loan

Islamic loans refer to a financial arrangement compliant with Islamic (Shariah) law prohibiting interest (riba). Instead of interest, profit rates based on various Shariah-compliant contracts like Murabahah, Bai’ Bithaman Ajil, or Tawarruq are used. The bank earns a profit margin on the financing provided, which is agreed upon upfront, ensuring the transactions adhere to Islamic ethics and principles.

Islamic loans are a unique type of personal loan available in Malaysia that are designed in compliance with Islamic law, also known as Sharia law. These loans are also known as Shariah-compliant loans and are based on the principles of fairness, transparency, and avoidance of interest (riba).

This type of financing is structured on the concept of Bai’ Al-Inah, which means a sale and buy-back agreement. The bank sells an asset to the borrower on a deferred payment basis and then the borrower sells it back to the bank for cash at a lower price. The difference between the two prices is considered the profit for the bank, not interest. Islamic loans are popular for those seeking ethical and fair financing options.

Example of Islamic personal loan

Islamic personal loans in Malaysia are structured to comply with Shariah law, which prohibits the charging of interest (Riba). Instead of interest, Islamic financing uses various contract principles to generate a profit margin for the lender, such as Murabahah, Bai’ Bithaman Ajil, or Tawarruq. Here are some examples of Islamic personal loans available in Malaysia, each with their respective profit rates and tenures:

AEON iCASH Personal Financing

• Profit Rate: From 7.92% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM482.67.

KFH Murabahah Personal Financing-i

• Profit Rate: From 8.88% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM490.67.

Al Rajhi Personal Financing-i

• Profit Rate: From 6.37% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM469.75.

Bank Islam Personal Loans

• Profit Rate: From 4.03% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM451.67.

AmBank Islamic Personal Financing-i

• Profit Rate: From 4.3% p.a.
• Maximum Financing Amount: RM 200,000
• Low Income Requirement: RM1,500/month
• Wide Age Range Eligibility: 18 – 60 years old.

Alliance Bank CashVantage Personal Financing-i

• Profit Rate: From 4.99% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM466.58.

Bank Rakyat Personal Financing-i Private

• Profit Rate: From 7.66% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM480.50.

Bank Islam Flat Rate Personal Financing-i Package

• Profit Rate: From 4.2% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM451.67.

Hong Leong Islamic Personal Financing-i

• Profit Rate: From 9% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM491.67.

Bank Islam Floating Rate Personal Financing-i Package

• Profit Rate: From 5.67% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM463.92.

Maybank Islamic Personal Financing-i

• Profit Rate: From 6.5% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM483.33.

AmBank Islamic AmMoneyLine Facility-i

• Profit Rate: From 8% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM483.33.

HSBC Amanah Personal Financing-i

• Profit Rate: From 4.88% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM457.33.

CIMB Xpress Cash Financing-i

• Profit Rate: From 18% p.a.
• Tenure: over 2 years
• Monthly Repayment: RM566.67.

These examples reflect a variety of Islamic personal loans available in Malaysia. It shows different profit rates, tenures, and monthly repayment amounts.

Loan with Insurance/Takaful Coverage

Loan with Insurance/Takaful coverage refers to a loan arrangement where the borrower also obtains insurance or Takaful coverage. This coverage provides financial protection to the borrower’s family in the event of unforeseen circumstances such as death or total permanent disability of the borrower, ensuring that the loan repayments are taken care of and reducing the financial burden on the family

This loan offers the borrower peace of mind as it provides insurance coverage or Takaful protection to safeguard against unforeseen circumstances.

Notable features of this loan type include:

• Risk mitigation: The loan coverage provides financial protection in the event of death or total permanent disability.
• Flexible premiums: The premium can be included in the loan amount or paid separately.
• Shari’ah compliant: Takaful coverage is an Islamic insurance based on principles of mutual assistance.
• No medical check-up required: Most lenders won’t require a medical examination to qualify.
• Full loan settlement: In case of death or permanent disability, the insurance will settle the full loan amount.

Loan without Insurance/Takaful Coverage

A loan without Insurance/Takaful coverage is a loan arrangement where the borrower does not obtain insurance or Takaful coverage alongside the loan. In such arrangements, no financial protection is provided to the borrower’s family in case of unforeseen circumstances, such as the death or disability of the borrower, leaving the repayment responsibility solely on the borrower or their estate.

This loan without Insurance/Takaful does offer other advantages that may appeal to potential borrowers. These loans are typically structured more straightforwardly, with fewer conditions attached. The most significant benefit of these loans is the potentially lower cost, as borrowers are not required to pay for insurance premiums.

However, it’s worth noting that these loans often come with higher interest rates to offset the lender’s risk. This means that while borrowers may save on insurance costs, they could pay more interest over the loan’s lifespan.

Therefore, it’s important for borrowers to carefully evaluate their financial situation and risk tolerance before opting for a loan without insurance or Takaful coverage.

Loan Type Comparisons

Loan type comparison refers to evaluating different loan types based on interest rates, loan terms, repayment structures, and the requirement of collateral or insurance/Takaful coverage. This comparison helps borrowers understand and choose the most suitable loan type per their financial needs and circumstances.

Secured vs Unsecured Loans

Secured and unsecured loans are two different loan arrangements based on the presence or absence of collateral. Secured loans require the borrower to provide an asset as collateral, which the lender can seize if the borrower defaults on repayment. Unsecured loans do not require collateral, and approval is based on the borrower’s creditworthiness and financial capacity, with typically higher interest rates due to the increased risk for the lender. Your choice can significantly impact your financial obligations and risk exposure.

Here’s a brief comparison on secured vs unsecured loans:

• Secured Loans: These loans require collateral, such as a house or car, which can be claimed by the lender if you default.
• Unsecured Loans: These loans do not require collateral, but offer higher interest rates due to the increased risk for the lender.
• Interest Rates: Secured loans typically offer lower interest rates due to the lowered risk, while unsecured loans have higher rates.
• Loan Amount: Secured loans usually offer higher loan amounts, whereas unsecured loans are generally smaller.
• Risk: Secured loans put your assets at risk, while unsecured loans primarily risk your credit score.

Conventional vs Islamic Loans

Conventional and Islamic loans are two distinct financial arrangements. Conventional loans operate on an interest-based model, where borrowers repay the principal amount with added interest. Islamic loans adhere to Shariah law, which prohibits interest; instead, they employ profit-sharing or fee-based structures, ensuring the transactions comply with Islamic ethics and principles.

Both conventional and Islamic loans offer unique features and benefits to borrowers, but they operate on fundamentally different principles. The choice between these two types of loans often boils down to personal preference, religious beliefs, and financial considerations.

Each offers unique advantages and potential drawbacks, and it is advisable for borrowers to fully understand these before making a decision.

Loan with or without Insurance/Takaful Coverage

Personal loans with Insurance/Takaful coverage provide borrowers with an insurance or Takaful plan to cover loan repayments in case of unforeseen circumstances such as death or disability. Personal loans without Insurance/Takaful coverage lack this protection, leaving the borrower or their estate solely responsible for repayments regardless of unforeseen circumstances. Both offer borrowers varying degrees of financial protection and peace of mind. The choice largely depends on the borrower’s preference and financial circumstances.

The key differences between the with or without Insurance/Takaful are:

• Loan with insurance/Takaful coverage: This provides an added layer of security, ensuring the loan is paid off in the event of unforeseen circumstances like death or permanent disability.
• Loan without insurance/Takaful coverage: This is cheaper as there are no insurance premiums to pay, but it leaves the borrower vulnerable to debt in case of unexpected eventualities.
• Insurance/Takaful coverage can be optional or mandatory depending on the lender’s terms.
• The cost of the coverage will be added to the loan amount or the monthly repayments.
• The type of coverage chosen will affect the total cost of the loan.