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What is the similarity between hypermarkets and banks? They compete fiercely! And that means a better bargain for consumers.

Al Rajhi Personal Financing-i from the same bank is a good example and for those looking for a personal loan, it is worth to take a look. What make this loan attractive is it low back-end cost – it does not imposed any monthly late payment charges and no penalty on early loan settlement.

How it works
The requirement for Al Rahjhi’s Personal financing-i is very similar with others; it carries a flat 8.5% interest rate per annum (or profit rate in Islamic banking term) and the loan tenure is from minimum 2 years to maximum 5 years. Maximum loan amount is 5x of monthly income.

Within this loan, there is also a ‘mini loan’ with a maximum amount of RM20,000. This mini loan charges the same 8.5% interest but the approval requirement is much simpler – only IC and currently owned any bank’s credit card for a minimum of 2 years and have not owned more than 3 credit cards in total. Of course the approval is subjects to good credit rating. In a simpler form, this mini loan is just like swapping your credit card and hitting the limit at one go.

Upon approval of the loan, a new account will be created to facilitate auto loan payment deduction. There is no stopping one from withdrawing all the money from the account. However it is important to ensure sufficient money for the monthly auto deduction to avoid account being over drawn. The maximum allowed lapse payment is 3 months.

Processing fee
The up-front fees and charges is probably the highest in the industry – RM310 in total. Of that amount, RM150 is for the processing fee, RM150 is for the trading cost and RM10 is for the stamp duty cost.

Charges
Here is why this loan stands out. First it does not imposes any late payment or over drawn charges. But action will be taken should the payments lapsed more than 3 months.

Secondly, if you chose to settle the loan earlier, there is not only no early settlement penalty, but you also get a rebate on the interest and need only pay the outstanding principles (currently the standard practice is 1 to 3% of the outstanding balance + interest + principle) . The early settlement can be done through out the loan period and is not subjected to the minimum 2 years requirements.

Bottom line
Al Rajhi’s Personal Loan is attractive as it has rare ‘escape’ features especially for those who borrows the money for anything but self-indulgence and dubious consumption purpose. In fact, it early settlement interest rebate is a great incentive to pay-off the loan and that means a lower overall borrowing cost.

For those that have lesser discipline and commitment, the no late payment charge might be a moral hazard thing – it may encourages them to delay monthly payment that can quickly turns into payment lapse.

Any financial decision has a far reaching consequences, a seemly small RM20,000 loan now might affect your car/house buying, child education etc affordability in the future. Think carefully before committing to any personal loan.

Now let’s see how other banks react to Al Rajhi!

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