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5 Reasons You Should NOT Take ASB Financing

I took RM50k in ASB financing back in 2011, when I was 22 years old. It was one of the best financial decisions I’ve ever made. I remember feeling excited over my first-ever ASB dividend payout – I received RM2.4k for the year by just paying RM289 every month!

Related: Beginner’s Guide to Amanah Saham Bumiputera by iMoney.my

But as with everything else, there are some good reasons NOT to take advantage of ASB financing, aka the loan specifically designed to invest in ASB, one of the fixed-priced funds offered by Amanah Saham Nasional Berhad (ASBN). Here they are:

Reason No #1 – You’re not categorised as Bumiputera

Unfortunately, ASB investment is only for the Bumiputera – that means the ethnic Malays, Orang Asli and the indigenous communities in East Malaysia. So that means if you’re not Bumi, there’s no point doing ASB financing – your application will be dismissed anyway.

Yes, it’s not fair. Yes, it should be needs-based rather than race-based. Personally, I’ll continue to speak out against it and I encourage other Malays to do the same.

Related: [PERSONAL] Malay and Money: A Reflection

Important: ASB is NOT the only investment offered by ASNB – there are other fixed-price and variable-price funds. Generally speaking, it is harder for non-Bumi to get fixed priced ASNB funds, but it is possible. Read DividendMagic’s experience in getting ASM funds here.

*No, there are no ASM financing or other loans for investment that is similar to ASB financing

Ok, assuming you are classified as Bumiputera. What are other bad reasons to take ASB financing?

Reason no #2 – If ASB returns are consistently lower than ASB financing rate

Remember this: Taking a loan to invest *only* makes sense if the returns are consistently higher than the financing rate.

Between 2010-2020, the annual returns for ASB investment ranged from 4.25% to 8.9% (source: MyPF.my’s page on ASB annual returns). It is true that ASB returns have been shrinking in recent years and the lowest it’s ever been in 2020.

On the other hand, ASB financing rates are between mid-to-high 3.xx% to low 4.xx%* (see what affects the financing rate below).

Therefore: while ASB returns and ASB financing were dangerously close in 2020, the former was never lowER, and as of time of writing, has only been a one-off event and not a pattern (yet).

HOWEVER, if say ASB investment performs worse than 2020 in the next few years, then yes ASB financing wouldn’t make sense anymore. You’ll be losing money. Why take ASB loan to invest if you’re going to lose money.

*ASB financing rates depends on:

  • how much you borrow (you get better rates for RM50k ASB financing and above),
  • the base rate (BR),
  • taken with takaful or without,
  • which bank (and bank agent) you got it from,
  • etc (tell me if there are other ways to get good ASB financing rates in the comments section!)

The lower the ASB financing rates you can get, the better. However, even the best ASB financing rate doesn’t matter if..

Reason #3 – Your income is unstable AND you have little-to-no savings

The thing about taking an ASB loan is you have to pay them back every month. It doesn’t care if you had reduced income a few months in a row, or if you lost your job, or if you have to pay for medical emergencies, or whatever. The instalments go on.

The actual numbers depend on your ASB financing rates (see #2), but this is how much will be deducted automatically from your bank account every month, assuming you took a 20-to-30-year ASB loan:

  • RM10k (min amount) – RM4x to RM5x per month
  • RM50k – RM2xx to RM3xx
  • RM100k – RM4xx to RM5xx
  • RM150k – RM6xx to RM8xx
  • RM200k (max amount) – RM9xx to RM1,1xx

Source: Maybank ASB financing monthly instalment repayment schedule

So yeah. How confident are you to pay up to RM1,1xx per month for the remainder of your term? Thankfully, it is possible to cancel the ASB loan and generally speaking, the penalty if minimal, if any. Check with your banks and the contract you signed.

(Alternatively, you can also pay instalments using past years’ ASB profits. Some people call this the ‘rolling’ strategy. I think it’s better to not touch profits and let it compound, unless absolutely necessary aka for health or safety reasons ONLY)

Reason #4 – Banks don’t let you borrow money from them

How to take ASB financing if banks don’t let you borrow from them? You may want but you may not be able to get.

There are a few situations where you can’t secure a loan from the bank, not just for ASB financing but also other types of loans like home loan, hire purchase (aka car loan) and more. You can read more in this LoanStreet article, but briefly, here are some causes:

  • Don’t have steady job
  • Don’t have/can’t show income source (if from business, you need documentation)
  • Already have too many loans/commitments
  • Blacklisted
  • You want ASB financing-i but only offered ASB financing

Personally, while my RM50k ASB loan in 2011 went through, my application for RM150k loan around 2018 failed. I think it’s because my income fluctuated too much since I became self-employed, but I don’t know for sure. A part of me slightly regretted not taking a higher ASB loan amount, but I also know early 20s-me would have struggled with the payments, so I made peace with it.

Reason #5 – Taking on debt bothers you

Some people just don’t sit well with taking debt, any debt, and that’s fine. I kind of even get it.

If that’s the case, you can do normal ASB saving without the ASB financing – just put in RM100 or RM200 or however much you can afford into ASB every month. You can also do other investments.

Related: What to Invest with RM1000: 15 Options You Should Know

Other reasons not to take ASB Financing?

These are 5 reasons NOT to take ASB financing that I can think of. If none of them are problems for you, then perhaps it’s not a bad idea to get it. Again, I’m personally happy with my decision to both take ASB financing AND add on more funds to my ASB by regular saving – I aim to max out the RM200k cap ASAP.

Lastly, let’s quickly go over:

Where to get ASB loan

You can get ASB financing from:

Any of you took ASB loan? Where did you get it from, and how much and what’s the ASB rate did you get, and – most importantly – are you happy with your decision? Are there more reasons to NOT take ASB financing? Share your experiences in the comments section below!

Obligatory disclaimer: not financial advice, just lots of research and personal experience

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8 Comments

  1. I took a rm200k loan in 2013 from Maybank. Tenure 10 years. Things that u must know b4hand are:
    1. The 1st year loan repayments must be from your own savings or income. You cannot use the ASB returns yet as they have not come in.
    2. The 2nd, 3rd and even 4th or 5th year loan repayments may still need to be topped up with yr personal funds as ASB returns aka dividends may most likely be not enough to cover the instalments.
    3. The only way to avoid No.2 situation above is to lenghthen the loan tenure. So in my case it shld hv been 20 years. Since I only took 10 years because I didn’t want another 20 yr loan on top of my existing housing loan, i had to top up a fair bit.
    4. The whole idea and concept is ideal but depends totally on a higher ASB return (ideally 7% to 8%pa) and provided yr ASB loan rate does not fluctuate. Ie. Must be fixed.
    5. I redeemed my loan sometime in 2017 or 2018 as returns were starting to decline and as expected further declined further thereafter. Upon redemption, I received approximately RM20k or 25k profit [can’t remember] (even after deducting my top up amounts). I think I exited in good time as the returns declined steadily after that and I would probably not have made any profit if i chose to stay on.

    1. Thanks Linda for expanding the ASBF ‘rolling profit’ strategy. Personally I have no regrets continuing to pay instalments from my own funds instead of prev years’ profits

  2. If asb returns only 1-2% after deduct asb financing rates, can considered as quite bad?

    1. if you have RM10k-200k to compound right from the start, then no need to do asbf at all. but if not, then as long as nett profit > total financing (plus fees, if any), all good

  3. The only way to win in taking up ASB Financing is to let the dividends to be compounded over the years. Easier said than done I know, but if you have the capability to contain yourself from withdrawing the dividends, please do so. You’ll be amazed with the outcome (coming from personal experience).

    Btw just to share in case it might help, Maybank has this new “product” called ASB Plus, sort of like you could refinance ur existing ASB loan with an even lower interest rate which provides you with 2 benefits; lower monthly instalments and cash refund. I shared about it in my tweet https://twitter.com/irfanothmann/status/1393106462956691459?s=21

    1. Thanks for the info on ASB Plus, Irfan!

      (Also – allow me to flex, but I didn’t know it’s hard to NOT withdraw dividends. Most of the time I continue paying my ASBF and barely pay attention to it)

  4. hi suraya,thanks for this article.Love reading yours.As banker previous with cimb and now with another bank.MORE THAN 6 years experience in asb loan financing processing,i can tell asb financing still relevan even worse economy.Better than never.Its good to create saving habit for youngsters.I facing lot of customer experience and alhamdulilah asb main focus to bumi.If not surely this fund fully utilise as ASM ,ASIM,ASW 2020 and other fixed income under asnb which dividen around 5-6% which better than fixed deposit provided from the bank.

    I write alot about asb financing in my blog.irdargarmin.blogspot.com.

    and i love reading your website too.Feel free to contact me incase u need asb financing advised too via email irdagarmin@gmail.com.

    thank you suraya.keep on writing ya.

    1. Thank you Irda for the comment and financing advice offer 🙂 Don’t know about the rest but the ‘force-saving’ part worked for me!

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