There are 3 major categories of loans in Malaysia; Personal Loans, Car Loans, and Housing Loans. In this article, we will explain each loan in detail.
People choose personal loans due to several reasons including paying their children’s education fees, family holiday expenses, wedding expenses, home renovations, debt consolidation by paying credit cards’ high interests rates, and other personal needs. There are two types of personal loans; unsecured and secured personal loans and each of them have their own advantages and disadvantages. An unsecured loan is a loan that the applicant does not have to put up a collateral to get it while a secured personal loan is a loan that the applicant offers one of his or her assets including home, cars, and other forms of collaterals to get the loan. As a result of that, secured personal loan interest rates are significantly lower than the unsecured ones. An unsecured personal loan is also more difficult to get because the applicant has to convince the bank or financial institution that they are able to repay back the loan amount by depending on their financial credit worthiness. There are two types of interest rates for personal loans; fixed interest rate personal loan and variable interest rate personal loan. A fixed interest rate is an interest rate that is permanent until the end of the loan tenure while a variable interest rate is an interest rate that changes depending on how the market moves.
Car loans are loans used to finance motor vehicles purchases. Documents required to apply for a car loan include
- The vehicle’s registration
- Photocopy of NRIC or MyKad and Passport for front and back
- Latest payslips
- Latest EPF statements
- Borang EA
- Latest 6 months’ bank statement as proof of income if you are self-employed
According to the rules stipulated by Bank Negara Malaysia, the maximum loan tenure for any vehicle cannot be more than 9 years or 108 months and the maximum loan amount allowed for a vehicle is only up to 90%. The applicant has to pay the remaining 10% of the balance by using his or her own money.
Car loans in Malaysia operate on a principle of Hire Purchase Agreements, where the bank buys the car or vehicle for you upfront and you hire the car from the bank by making the monthly repayments. Once the borrower completes the full payment, the bank will transfer the ownership of the car or vehicle to him or her. In the worst scenario, the bank will repossess the car or vehicle should the borrower fail to make the monthly repayments.
Housing loans, also known as mortgages, are loans to help Malaysian citizens to buy their first house or subsequent houses. Housing loans are secured loans, where the house is the collateral to protect against the loan. To apply, you need the same required documents as listed above.
According to rules set by Bank Negara Malaysia, housing loans can only have a maximum loan tenure of up to 30 years or when the applicant turns 65, whichever that is earlier. The second rule set is the housing loan maximum amount can only be up to 95% of the property purchase price or the market value of the completed properties.
There are two types of housing loans in Malaysia; conventional home loan and Islamic home loan. Under conventional home loan, banks usually charge a fixed interest rate, variable interest rate or a combination of both and most of them are in the variable interest rate category. Flexi home loans, loans that give the borrower great flexibility, are also currently offered by many banks.
While almost similar to the conventional home loan, Islamic home loans differ in having different concept and principles. In contrast to conventional home loan, Islamic home loans are not based on interest rates because it is not permitted to do so. Instead, there are two different types of Islamic home loans; Bai’ Bithaman Ajil (BBA) home financing and Musharakah Mutanaqisah (MM) home financing. Bai’ Bithaman Ajil (BBA) home financing utilizes the concept of buy and sell, where the bank buys the property at the current market price and then sells it back to the customer at an agreed price including the original cost of the property and the bank’s markup for profit. Musharakah Mutanaqisah (MM) home financing uses the concept of partnership, where the bank and the borrower buy the property together and the bank will lease its share back to the borrower. In return, the borrower promises to buy the bank’s share ownership in the property He or she continues to do so by paying a rental to the bank until the amount is enough to buy up the whole bank’s share in the property.
Besides the 3 major loans above, banks in Malaysia also offer other loans including overdraft facilities, education loans, and the ability to purchase Amanah Saham Bumiputera (ASB) shares and units. In addition, licensed moneylenders around the country do offer other types of loans such as payday loans, cash advance loans, and foreigner loans. It is important for you to study each of these moneylenders carefully to avoid taking up loans from unlicensed moneylenders, otherwise known as loan sharks or Ah Longs. Failure to repayment the loans from loan sharks will land you in severe consequences such as blackmail, constant threats. and ridiculous interest rates.