Things you should know about personal loans

What is a personal loan?

A personal loan is simply a short-term loan that has a relative short repayment period in comparison to mortgages. While one can fully offset a mortgage for as long as 30, 20 or 50 years you have to fully settle the personal loan for a period which should not exceed 10 years, this being variable depending on the amount loaned.

The personal loan is quite distinct from the home loan as the personal loan is unsecure. This implies that for the personal loan the client can borrow a given amount of money without the lender asking for any form of security or asset for the loan being offered. It is good to note that while no form of security is required the client is supposed to ensure that he/she makes timely payment to avoid some penalties which might impact negatively on their credit rating.

What is the difference between Islamic and conventional loans?

Despite the end goals and results for taking these loans being similar they employ or obey different principles at the time of their acquisition as well as the penalties that defaulters may attract. The Shariah laws normally apply in Islamic loans.

But the conditions for both these forms of loans are basically the same as one is given a fixed amount of money which they are expected to pay at regular intervals these being inclusive of the specified interest rates till completion of the payment.

How do you apply for a personal loan in Malaysia?

In Malaysia one can be able to get access to personal loans, which can be as low as RM 1000 with some even exceeding the RM 150,000 mark. The loan amount that one can be able to access is determined by the individual needs as well as their ability to repay the loan. The terms offered by the given lender will also influence the decision to be made by the client. In a situation where one needs a loan amount that exceeds what is being offered by the lender one has the alternative of taking a secured loan.

If you choose the lender to be a bank, you have to follow the necessary procedure which could involve a loan agreement which will specify details such as the amount borrowed, the interest rate being charged and the amount that is to be paid on a monthly basis. The repayment terms will also be included in the loan agreement that is the monthly payment and how long the loan payment period will be. It is a given fact that the longer repayment periods will attract higher cumulative amounts for the payment of the loan.

The types of loan offered could either be secured or unsecured loans. The personal loans that most opt for in Malaysia are the unsecured type.

What are the differences between unsecured and secured loans?

Secured loan:

This is basically a loan in which the borrowers offer some of their assets for instance a car to act as a form of security or as a collateral for the loan. This makes the borrowing of such a loan attract relatively lower rates than for the unsecure loans. One should be cautious with this option as failure to meet the payment requirements might lead to one losing the asset he/she pledged as a collateral or security.

Unsecured loan:

Its acquisition might turn out to be tedious as it does not require any security or collateral. The financial and credit worthiness of an individual will be great determinants of whether the loan will be awarded to them or not. These are measures that are meant to ensure or guarantee payment of a specified loan.

In case a borrower defaults or is unable to complete the payment he/she could be taken to court after which the sale of ones property could be the only way to get the required amount but this is indirect and different from the case of secured loans.

What are the interest rates for personal loan?

As alluded to earlier the good packages are the ones that attract relatively lower interest rates. This will make the cumulative amount to be paid to be much less. The market situation in Malaysia is one in which the interest rates are charged on a flat rate basis. The flat interest rate refers to a type of interest in which case the interest is charged on the original amount, this having nothing to do with what was paid initially.

What are the fees and penalties for personal loan?

The early settlement penalty:

Some banks will charge one a penalty fee for paying an amount earlier than agreed as they feel that they would not have earned enough interest on the amount loaned. The figure for this is highly variable but at times it could be as high as the interest that could be accrued in three months.

Other fees:

It is recommended that you go through the loan agreement to familiarize yourself with the other fees that may be required for a certain loan. These could include the stamp duties, processing fees as well as other one-time charges.

What are the eligibility criteria for personal loan?

Most of the lender have tight rules as far as eligibility is concerned. The eligibility terms could range from the income or even age requirements. At times the client may be asked to give the lender proof for the ownership of certain property or any other assets. Your debt liabilities would not be spared either.

What are the common personal loan terms used?

Collateral:

This refers to the asset the borrower pledges to a given lender in order to secure a loan and this will be impounded by the lender in case of default in payment of the loan. The case in Malaysia particularly for the islamic personal loans don require the need for a collateral.

Early settlement penalties:

The fees that the borrower will have to pay in the event that he/she had settled the loan at an earlier date from the one specified on the loan agreement. This is usually estimated as a percentage of the initial loan amount.

Guarantor:

This a person who agrees to be liable for the payment of a loan in the event that the borrower will not be in a position to pay it in time.

Late Payment Charges:

This is the fee that the bank will charge you in the event you are not able to pay your loan in the agreed time schedule. The borrower has to pay for this additional fee and it is mostly at the rate of 1 % per annum.

Loan/Financing tenure:

This refers to the period for a certain loan. At the end of the loan tenure the borrower is supposed to have cleared the loan taken.

How do I determine the best personal loan for me?

Personal loans, just like other loans, come in different forms. All the lenders have different packages with various terms. To make a prudent decision especially in the times that you are short of money, you ought to compare the different rates available in the market. You could best achieve this by making use of the online loan calculator.

Getting started is pretty easy, all you have to do is to indicate the loan you prefer and specify the amount and period you want to clear the payment of it in the various available fields. The online calculator will then make it easy for you by providing suitable loan packages that are available on the market, and it is worth noting that the best rates will feature at the top. If you wish to sign for a personal loan you will then click on the Apply button.

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