smartconsumerbanking.com

[This is an in-depth review on personal loan]

It is so easy to get cash money now a day!

You get it in your mail box, sms, phone call, newspaper, radio, outdoor billboard.

Spread like a wild fire, personal loans are now fast becoming a main stream offer by banks, a far cry from as recent as 3 years ago. And, the competition is just getting hotter and more aggresive; Hong Leong Bank 48 hours fast approval has been toppled by Standard Chartered’s 24 hours approval, RHB offers the longest repayment period up to 7 years with a loan amount up to RM150,000. Recently I received a “pre-approved” cheque from a bank worth RM10,000 and what I need to do is just called the number behind to activate the cheque - it’s just like having a wind fall of RM10,000! Eager to get me sign up the loan, the same bank called me to follow up with its previous efforts.

How such personal loans started?
A personal loan is a loan from a lender that is not secured by any collateral such as property. Thanks to the relaxation on BNM interest rate rulling, personal loan is now flourishing where alomost every single commercial banks have one. In its simpler form, these personal loans are like a second credit card but the difference is you can only swipe once and by that one swipe, you max out your credit limit.

Who are the target consumers?
The good news is both you and me are probably qualified for the loan - the minimum required annual income is between RM18,000 to RM24,000. With such low income requirement, it is likely that such loan will attract younger working population who may have many materials wants but less financial means. The promotion message suggests the loan can be used to buy the dream holiday package, to renovate the house or for a more noble course – to further education.

How it works?
Here is how it works –the total loan amount will be given out in one lump sum and the borrower repays the loan in a fixed amount on a monthly basis. The loan repayment period starts from a minimum 24 months to a maximum 60 months. The borrower is required to make the repayments in a series of fixed installment throughout the loan period. No guarantor or collateral needed. Sound familiar? The application process is exactly like applying for a credit card. The loan amount usually capped at RM150,000 or 5 times of the applicant’s monthly income.

Interest rate and fees (comply to islamic Banking rules)
Most banks offer a fixed rate ranging from 8.5% to 12% per annum (current BLR is 6.75%). If you don’t like fixed rate, you can also choose a reducing balance rate (like a housing loan). However such reducing balance rate starts from 14% to 20% p.a. Borrowers are also required to pay one-time processing fee and stamp duty averaging RM200. Late monthly payment will cost you 1% of the minimum payment. There is also an penalty for early loan settlement – averaging about RM200-300 or 3% of outstanding balance. Important note, some bank reserved the right to change the interest rate on its own discretion without given any prior notice.

Understand what you are signing for

If you are looking a personal loan, here is a quick guide:

• Aways safeguard your interest by looking the minimum lock-in period. The interest rate of personal loans comes in many sizes and shapes, and could be potentially confusing in making a sound judgement. In any case, avoid making a decesion merely based on interest rate. One should always take take into consideration of the minumim loan period. Most of the personal loans have a minimum lock-in period of 2 years and should you decided to settle the loan earlier, you will have to pay a hefty early settlement penalty. A lower interest rate but with long minimum lock-in period might not necessary be cheaper than a higher rate but with a shorter minimum loan period. The easier way to do this is to look at the loan payment table - a table similar with the car loan payment table. Such table is easily available from the banks of their representative.

• Compare banks’ rate and understand fixed rate vs reducing balance method. Decide if the fixed rate (like car loan) or the reducing balance rate (like housing loan) suits you cash flow better.

• Look at the total cost of loan, not just the monthly payments. The cost of the loan includes processing and stamp duty fees, late payment charges and early loan settlement fees.

• Look for any hidden charges. Get the loan officer to explain each of the items thoroughly. Check carefully if the bank reserved the right to change the interest rate at it own discretion.

Aeon Credit Service Sdn. Bhd has just entered the personal loan foray on late November. Its loan is slightly different from the rest – it offers the shortest repayment periods start from 6 months and stretch up to 36 months. Maximum loan amount is also relatively lower which capped at RM20,000.

Below is a personal loan table smapler. Click the image for a complete view

Note: Information were collected from respective bank websites, newspaper advertising, direct mail, and call made to call centers from Aug - Oct’06

Key Word: Personal loan; Anytime Money; Quick cash; 24 hours approval; up to RM15,000; HSBC; Standard Charted Bank; Public Bank, CIMB, RHB Bank; Payment Table; Payment Period; Processing fee