Loans are a viable means of securing funds to fulfil a requirement. These may vary from fulfilling short term goals of owning a car or long term goals such as funding higher education for one’s children. It could also be an unforeseen medical emergency, whatever the need may be the fact is that loans are the go to option for many people to acquire an additional source of funds. Personal loans are the most preferred option amongst all the loans as the financing amount offered is high and there is no defined purpose for the loan. Once approved, the loan amount can be used as deemed fit by the borrower. Below is the glossary of terms one comes across whilst looking for the loan that suits them the best.
Annual Percentage Rate:
The APR is the annual interest rate charged against the loan amount. This is inclusive of fees and is a representative value that makes it easier for an aspiring applicant to gauge how much a loan of a particular amount would cost them and makes it easier for them to compare loans offered by different banks in Malaysia.
A prerequisite for a secured loan, it is a form of security, usually personal property such as a house or a car that is given as a guarantee to the lender that the borrower will pay back the loan plus interest in the specified time limit. In any event of failure to pay the loans, the collateral put is repossessed by the lender.
This is a historical record of an individual’s credit transactions such as overdraft, credit cards, loans and their payments.
Credit Reference Agency:
These are organizations that collect and store data and records of an individual pertaining to credit records, payments and whether they were made on time or not, applications, queries etc. Financial institutions refer to the data collected by Credit reference agencies while assessing loan application.
Also known as credit scoring, it is the process of lenders assessing whether an application for a loan should be approved or not. Lenders usually go through the details provided in the application and consult a credit reference agency. Hence the maintenance of a good credit score is a must
This score is what determines if a person is credit worth or not. Since most loans are unsecured, credit scores are very important to maintain because it gives faith to the lender that the borrower can and will repay the loan and the chances of a loan application being accepted is higher
This is a scenario when a borrower takes out a personal loan and uses the amount to pay off other debts such as outstanding credit card debts. Debt consolidation, under the right circumstances, is an effective method to reduce the overall interest charged on other outstanding loans and makes it more convenient by having only one monthly payment to make instead of multiple payments. Debt consolidation should be taken up only after careful consideration.
When a borrower is unable to make the monthly payments and pay back the loans, the borrower is said to have defaulted on the loans. In the event of a default, the lender can repossess any collateral put against the loan or take legal action against the borrower
Early settlement fee:
This fee is charged in the event that the borrower manages to pay off the entire loan before the end of the loan tenure.
Fixed interest rate:
Otherwise known as Flat interest rate, is a type of interest levied against a borrowed amount that does not change throughout the duration or tenure of the loan. Majority personal loan interest rates offered in Malaysia are fixed which means there is a predefined amount of interest added into the monthly payment which will not fluctuate.
Late penalty fee:
This fee or charge is a penalty for not paying the monthly instalments on or before the due date.
A lender is the person, private or public financial institute that agrees to give the borrower the requested amount with the understanding that the borrower is legally bound to return the principal amount along with additional interest.
Principal of the loan is the total amount borrowed excluding any administration fees and interest.
This is the annual interest charged against the borrowed amount. This percentage is a singular number that helps people to compare the loans offered by different banks in Malaysia. The Representative APR varies for everyone based on their credit score. The interest that ends up being charged for a person taking out a loan does not vary too much from the representative APR and under normal circumstances close to 60% of the applicants are offered the representative APR.
Secured loans are those loans which require the borrower to put up personal property such as a house or an automobile as collateral against the loan amount borrowed. In case of failure by the borrower to repay the loan, the lender has right to repossess the property put up as collateral
While processing a loan, there are a set of legal documents required. Stamp duty, otherwise known as stamp tax is the charge levied for making these legal documents during processing.
Term is the duration of time in which a loan has to be repaid.
Tenure similar to a term is the amount of time provided in which one has to pay back the loan. Generally, the longer the tenure, the more interest a borrower will have to pay.
This is the most common type of loans available in Malaysia. An unsecured loan implies that the borrower need not put up a collateral against the loan or need not require a guarantor whilst undertaking the loan. Property and personal possession of the borrower or the guarantor would not be repossessed by the lending institute or lender in case the borrower cannot pay back the loan. The borrower will still be subject to legal action taken against them in case of defaulting on the loan.
Variable interest rates:
These interest rates as the name suggests may fluctuate at any given point of time. Variable interest rates are pegged to the bank’s base lending rate and hence can fluctuate as per a fluctuation in the base lending rate of the bank.