A bit on personal loans
In these times of high prices and low salaries, a lot of people get into financial difficulties when they end up with a lot of credit card debt to maintain their lifestyle.
Anyway, no judgement - mistakes happen, I've been there too. The thing is how to get out of it.
This is where I think personal loans are not too bad. Well, they are expensive if you take a long tenure but if you know how to use them wisely, they can be very useful.
As a banker, these are the tips on how to maximise on your personal loan:
1. Have a clear objective:
Such as to clear off your card debt AND that you are going to stop using that card! The lower monthly monthly repayment is meant to relieve your monthly budget and create a set timeline to pay off that amount.
2. Be disciplined:
Per no 1, don't run up another debt on another card for goodness sake.
3. Sign up for the lowest TENURE, not the lowest rate:
The shorter tenures have the cheapest rates anyway. If you try shopping around for so-called 'cheap rates' but you want to take a 10-year personal loan, you're screwed whichever bank's loan you take. Because the difference of say 0.1% within Bank A and Bank B still adds up to you paying about 100% in interest to your principle.
On the other hand, if you take a 3 year loan, you're likely to end up paying an effective rate of around 12% to 15%. It's painful for a short time because the repayment per month is higher but you'll be out of debt much faster.
4. Consider early repayment:
This is for folks who may need some short term bridging financing and they know they have some cash coming in soon but need the money now. It's ok to use personal loans because the penalty is usually about 3% on the remaining loan sum.
Lets say you took a loan, serviced it for about a year, then paid it off in full, you've only paid a year's interest plus a 3% penalty which still works out to be much cheaper than servicing the full loan.
But this is for full settlement, not partial payments. The personal loan structures in Malaysia are not created in that way, it is for maximum profit and minimal convenience. Well, convenient to get it in the first place but not so once you're servicing it ha ha ha!
Which loans to take? Islamic? Conventional?
The secret is... there's hardly any difference.
Most of the banks are offering Islamic because they need a higher return to offset the high deposit / investment rates that they are paying for Islamic funds.
Only the foreign banks are offering conventional which are also slightly more flexible and cheaper in the lower tenures. Downside is that foreign banks' credit approval is stricter than local banks, yes indeed. Used to be the other way around, how times change..
There you go, if you need the money, just take the loan but make sure you know why you are doing it and stick to your plan.
Anyway, no judgement - mistakes happen, I've been there too. The thing is how to get out of it.
This is where I think personal loans are not too bad. Well, they are expensive if you take a long tenure but if you know how to use them wisely, they can be very useful.
As a banker, these are the tips on how to maximise on your personal loan:
1. Have a clear objective:
Such as to clear off your card debt AND that you are going to stop using that card! The lower monthly monthly repayment is meant to relieve your monthly budget and create a set timeline to pay off that amount.
2. Be disciplined:
Per no 1, don't run up another debt on another card for goodness sake.
3. Sign up for the lowest TENURE, not the lowest rate:
The shorter tenures have the cheapest rates anyway. If you try shopping around for so-called 'cheap rates' but you want to take a 10-year personal loan, you're screwed whichever bank's loan you take. Because the difference of say 0.1% within Bank A and Bank B still adds up to you paying about 100% in interest to your principle.
On the other hand, if you take a 3 year loan, you're likely to end up paying an effective rate of around 12% to 15%. It's painful for a short time because the repayment per month is higher but you'll be out of debt much faster.
4. Consider early repayment:
This is for folks who may need some short term bridging financing and they know they have some cash coming in soon but need the money now. It's ok to use personal loans because the penalty is usually about 3% on the remaining loan sum.
Lets say you took a loan, serviced it for about a year, then paid it off in full, you've only paid a year's interest plus a 3% penalty which still works out to be much cheaper than servicing the full loan.
But this is for full settlement, not partial payments. The personal loan structures in Malaysia are not created in that way, it is for maximum profit and minimal convenience. Well, convenient to get it in the first place but not so once you're servicing it ha ha ha!
Which loans to take? Islamic? Conventional?
The secret is... there's hardly any difference.
Most of the banks are offering Islamic because they need a higher return to offset the high deposit / investment rates that they are paying for Islamic funds.
Only the foreign banks are offering conventional which are also slightly more flexible and cheaper in the lower tenures. Downside is that foreign banks' credit approval is stricter than local banks, yes indeed. Used to be the other way around, how times change..
There you go, if you need the money, just take the loan but make sure you know why you are doing it and stick to your plan.
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