Guide: Getting Personal with Personal Loan in Malaysia

I don’t know about you guys, but lately I notice that I get way more loan advertisements than before.

They:

• Called me via phone. This was CIMB mostly. I said no (related: Telemarketer sales tactics you should know), and the poor guy sounded really desperate. He even suggested a few ways for me to use the loan money (Is there a business you want to finance? Is there anything you want?), which I thought was really unprofessional.
• Texted me via SMS. I always blacklist the numbers afterwards, so this isn’t so bad.
• Mailed stuff/gave flyers to me.
• Included in email newsletters, including from Malaysian personal finance websites.
• Are on Facebook. I’ve never clicked on them, but some looked suspiciously ah-long-y
• Are on Twitter. Same.
• Are on Flipboard. Same.
• Financial apps. Some of them analyse data from your finances then ‘advice’ you to get loans, which to me is a bit too much

Aside from these, I also get quite a few advertisements for trading platforms, (especially Forex. Related: My No-Bullshit Forex guide),  credit card offers, MLMs, and some others.

To be fair, I do search for a lot of finance-related content, so maybe my Google history algorithm reflected this.

Do you get these ads, too? Share in comments where else you see them.

(I’m interested in this data as the number of exposure has a direct effect on your likelihood using these services. 80% of sales are made on the fifth to twelfth contact.)

Loans in Malaysia

There are a few types of loans in Malaysia. Some of the most popular are:

• Car loans
• Education loans
• Housing loans
• Business loans
• Investment-specific loans (ie ASB)

These tend to be ‘strategic’ loans, so I’m not mad about them if the T&Cs are within reason.

I mean, car loans help people commute to work. Education loans make people more employable. Housing loans help people get a property for own stay or investment. Business loans can help a company scale bigger and get more profit. ASB loans are supposed to help Malays bridge the economic gap.

But let’s talk about the sixth type of loan. Personal loans. 

Personal Loan in Malaysia

Personal loans can be turned into any of the above loans. You can use it for anything you want- good or bad purchases. It’s very flexible.

The range of available personal loans in Malaysia is rather interesting. We have options for Syariah-compliant loans, civil servants’ loans, and even blacklisted loans (often illegal).

In general, personal loans in Malaysia have:

• Higher interest rates than the ‘strategic’ loans. The rates are highly dependent on your credit score. If you are blacklisted, you’ll probably never get good rates
• No collateral (ie: No need to promise the bank your car or your house if you can’t make payments)
• Relatively short repayment term. Between 6 months to 5 years only, usually

Like other financial tools, you can use personal loans to your advantage. In equal measure, it can also be turned into a nasty disadvantage.

Here are some good and bad reasons to get a personal loan in Malaysia

Good Reasons to get a Personal Loan in Malaysia

You want to pay off a high-interest debt

Getting a loan to pay off a loan is a thing. Say you have credit card debt at 18% per annum (higher interest), and qualify for a personal loan at 10% per annum (lower interest). Do it, it’s smart. You’ll still have to make payments, but now at least you get to save some money in interest payments.

Borrow just enough to pay the credit card debt (or any other high-interest debt), and no more than that. Pay off the credit card balance in full. Make solid plans to pay off the personal loan on agreed schedule. Auto-deduct it from your bank to avoid any late penalties.

You want to scale your business

Notice I didn’t say ‘You want to START a business’. No no. This is only for businesses that are already ongoing, that just need a bit of capital to expand and grow. If you want to start your own business, I think the capital should come from yourself first.

Calculate how much you need. Make plans to ensure positive cashflow so you can make the loan payments.  A timeline with a plan – ie: if I can’t turn this into profit in x months/years, I have to cut off losses – is necessary.

You want to pay medical expenses for loved ones

Rather than a good reason, this is an ethical reason. In my faith, we believe that we have to try to improve our health in whatever way we can. I’m sure it’s the same in yours as well.

Unfortunately, this is one of those ‘win/lose-lose’ situation. If your loved ones heal, you still have to pay. If they don’t, you still have to pay. 14.3% of debt defaulters in Malaysia (ie people who cannot pay back) go bankrupt due to medical expenses.

I… am ok with going bankrupt if it means the smallest chance to save my mom’s life. Hope it does not come to that, but I’m prepared to.

You want to leave an abusive household

Well, it’s better if you can save up/borrow money from friends for this, but if you have no choice, go ahead and get a personal loan to help you move out.

This is especially true if you are physically and emotionally abused, and have children under your care. Get out of there, and find a secure location as a new base.

You need about 4 months worth of rental deposit, then living expenses for about 3-6 months. Factor in your moving costs, if you’re moving states/countries.

Get a support system as soon as you can. Get a job as soon as you can. Get whatever help available – from public or private agencies – immediately.

If you know someone in an abusive household, one of the best ways to help is to provide access to internet, so s/he can search for information and make a decision him/herself. Help them to record incidences of abuse (a simple notebook works), which can be used as evidence in court.

Never pressure them. Never ask ‘why didn’t you’ questions. Never make household problems a taboo subject. I notice that many Malay people like to say ‘leave their relationship problems for them (the couple) to solve and don’t get involved’, which is bullshit in the highest order.

You have unexpected repairs to pay for

A sudden burst pipe in your home? Yeah, that’s a situational emergency. Car suddenly breaks down and its the only way to get to work? Same. Get a loan if you can’t afford to finance these repairs yourself.

This is why I’m such a big fan of emergency funds, aka ‘if shit happens’ money. Once, when I was driving, a brick came out of nowhere and smashed my windshield. RM600+ to replace, if I recall correctly. Bad luck is bad luck. Shit happens.

Bad Reasons to get a Personal Loan in Malaysia

You want to keep up the illusion of wealth

This means adding on a personal loan on top of your current debts, for non-necessities. Borrowing money to appear wealthy is common. This is hard, we have the ‘saving face’ culture. This includes borrowing money for:

• Weddings
• Holidays
• Cosmetic house renovations
• Expensive clothes and accessories
• Your relatives’/friends’ ‘investment opportunity’ that you’re peer-pressured to join (Related: how to spot investment scams)
• Expensive, non-practical cars (I actually think that flashy cars are tacky AF. But I’m also not a car person, so)
• Studying overseas instead of locally
• And more

If you want to use the personal loan for the above, and generally things that are ‘wants’ instead of needs… I’m so scared about your future. I honestly don’t know how to go about this. If you have suggestions (that’s beyond ‘don’t do it’), please add on in the comments section.

Please don’t mock people in this category. It contributes to the problem.

You want to start a business

First-time venturing into own business? I wouldn’t recommend you to risk putting all of the capital/personal loan money into it. Sorry, but I do have to remind you that 96% of all businesses fail in the first 10 years. Believe in yourself, sure, but don’t put all your eggs in one basket.

Gambling

Getting personal loans just to gamble it away is a serious issue affecting a lot of people. Seek help and find support for gambling addicts, friend. These are not Malaysia-specific but may help: Gamblers Anonymous UK and Gambling Help Online. r/problemgambling has some resources for people who struggle to quit.

Conclusion

Over the years of reading financial advice, I’m convinced that having no debt (including ‘good debt’ like mortgages) is the way to go.

When the time comes, I’d like to buy a car in cash. Heck, I’d like to buy a house in cash – it’ll save me so much money in interest payments. In most cases, you end up paying almost as much interest than the actual house price.

Example so you know I’m not bullshitting: Let’s say you want to buy a house worth RM300k. You put down 10% as down payment and decided on 30 years repayment period. You took a home loan for the remaining RM270k.

After calculating here, you’ll see that in the end, you’re paying more than RM200k just for the interest. Almost half of your monthly payments (in this case, RM1368.05) goes towards interest!

I’m not saying don’t get loans.

Instead, be hyper aware of your interest payments. This example is is 4.5% interest, which is fairly low. You’ll find that a typical credit card has 1x% interest. Personal loans usually vary on your risk profile, ranging between about 7% all the way up to about 30% (more than that is not uncommon, too) per annum.

My experience with personal loans

I don’t know if this counts, but I’ve made several personal loans via credit card cash advance feature. Once for RM2k, another RM2k, then a RM4k loan. The first was to help finance a laptop,  the second was for… something (can’t remember), and the third was for a risky investment to diversify my portfolio (which thankfully, halleluyah, paid off).

Each of them was paid over 6 months’ period. Any longer than that, my bank will add on some more fees, and I didn’t particularly want to pay more fees.

I don’t know why, but I hated myself every time I decided to take those loans. I felt like I succumbed too easily to financial products and banks’ marketing efforts. It was too easy to apply for. All I had to do was log in my online banking account, apply, and minutes later the money was… there. It’s frustratingly efficient and annoyingly easy.

Think about it. It’s easy to get access to more money, anytime I want. That’s exactly why this is so scary. It’s too easy to be in debt. 

They say that this is a good thing. It’s there if I want it. So don’t get it if you don’t want it.

But I’m human. I get tempted too.

My friends and I have tentative plans for an all-girls trip to Iceland. I have savings but why touch that. Tempted.

Every so often, bitcoin’s price rises and I get greedy and feel like getting more. Tempted.

My parents talking about financial setbacks and I want to be their hero to save them. Tempted.

Gosh my teeth can use straightening. It’s not too late for braces right? Tempted. (Edit: I got braces)

And I get reminded about all loan offers received via all the channels I mentioned. I get reminded daily that I get to be better versions of myself, if only I get those loans.

It’s quite the sucker punch to the gut. I hate it.

But I’m still proud of resisting, because some days, it’s a lot of resisting. I want to be the kind of person who is constantly grateful for what she already has, not someone who is bitter over what she doesn’t have.

So I made a pact with myself to not get anymore loans, unless for good reasons. So far, it works. I’m about 1 year personal-loan-free!

So to close this, I have some questions for you.

(1) Have you made personal loans? Why? Interest rate?

(2) Do you get the ads for loans, too? Where?

Talk to me 🙂 I’m here on RoR website, on Facebook, and on Twitter too.