Are you planning to purchase a home in Malaysia and opt for a home loan? What if you have a bad credit? A bad credit may prevent you from receiving a home loan. Well, before you apply for a home loan check your credit score to ensure that your credit score is good enough to get you a home loan.
What is a bad credit?
A bad credit refers to low credit. It indicates that a borrower is carrying a higher credit risk. A bad credit is followed a low credit score while a good credit is followed by a high credit score. Usually, lenders do not want to lend credit to a person who has a bad credit as the risk involved in it is very high. Borrowers with a bad credit may miss loan repayment or indulge in defaulting which may affect the lender.
A lot of factors such as your payment history, amount borrowed, length of your credit history and payment schedule of a borrower may affect his/her credit score. Once your credit score comes down, it become very difficult for the person to obtain further credits such as car loans and personal loans etc.
Home loan with bad credit
Banks and other financial institutions in Malaysia consider your credit score before they approve your home loan application. If you have a bad credit or lower credit score, bank may end up rejecting your home loan application. Even if you get a home loan with bad credit, you make sure your monthly EMIs on time so that you can save your credit rating being more adversely affected.
How to get a home loan with bad credit in Malaysia?
Although it is difficult to get a home loan with a bad credit, it is not completely impossible to get a home loan with the same. But, you may end up paying higher cost for your home loan. Mentioned below are the steps that may help you get a home loan even with a bad credit.
- Try peer to peer lending: You can go for peer to peer lending if you have a bad credit. It is the process of lending money to unrelated individuals without following the procedure maintained by banks. These days peer to peer lending has become very popular and it can be availed online. Peer to Peer lending or P2PL creates a win- win situation for both the lender and receiver. The lender earns interest on his/her money lying idle rates while the borrower pays lower rates of interest compared to banks. These individual lenders/investors may not consider your bad credit score that seriously just as a bank may do.
- Apply at credit unions: A credit union is a non-profit organization managed by it members. It offers financial services such as offering credit at competitive rates and other financial services to its members. You can approach a credit union seeking a home. Since they are small lenders, they might offer you a home loan, even if have a bad credit.
- Use collaterals: If you have a bad credit and you are facing trouble in getting a home loan, you can use collaterals. When you seek a loan against by putting up collateral, your lender might think that you that you are a serious borrower and offer you credit even if you have a bad credit. You can use your Home Equity a collateral to take a home loan with bad credit. Although a considerable amount of risk involved in it and put your property into trouble, you can still save your property if you are a disciplined borrower.
- Add a co-applicant: Adding a co-applicant may help you get a home loan with a bad credit rating. You can add your spouse or friend with a good credit history as co –applicant. But, if you don’t pay your debt on time, the blame will come to you only, bringing down your credit score further. In future, it would be more difficult for you to get credits.
- Keep a track of your credit score: Lastly, the most important things you should do is to keep a track of your credit rating and try to keep it good by paying your debts without defaulting. The copy of your credit report is available with Bank of Negara Malaysia which you can obtain for free.
A bad credit not only makes you pay higher rate of interest, the fees and other charges associated with your home loan may also go high. Besides, you may end up facing a lot of hassles searching for various other means of receiving credits to purchase a house. So, it’s advisable you maintain a good credit and avoid all these hassles. Or else, you can apply for a home loan only after improving your credit score.