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!
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.
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
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
- 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.
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:
- Direct from banks – you can get from Maybank; Bank Islam; RHB Bank; Ambank; CIMB; Hong Leong Islamic Bank; Bank Muamalat; Affin Bank; and possibly more
- From agents – find them on social media. Get a few agents/quotations and compare rates
- From ASB loan comparison site like LoanStreet
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