Taking a personal loan is not as simple as ABC. There are many aspects to consider before applying for one. This article will help you decide whether or not taking a personal loan is a good idea when you just started working.

Firstly, let’s start with its definition. Cambridge dictionary defines personal loan as money that you borrow from a bank or other financial institutions for your personal use rather than business.

It sounds harmless but the reality can be scary.

A 2015 survey by Asian Institute of Finance (AIF) involving more than 1,000 young professionals aged 20 to 33 years old revealed that while 38% of the respondents had applied for personal loan, 58% had neither the capability nor the knowledge to manage their finances properly.

So, here are some considerations you should make before taking a personal loan.

  1. Firstly, check your affordability for repayment. Every bank has different interest rates when it comes to personal loan. One thing is for sure; no banks will be giving a loan to you with 0% interest. So, know the banks’ interest rates first before applying.
  2. Secondly, check your financial health. You can do that by checking your Central Credit Reference Information System (CCRIS) report. The report is managed by the Bank Negara Malaysia (BNM) and provides information such as outstanding bank loans, accounts specially monitored by the bank(s), and bank loan application status. It tracks your repayment behaviour for the past 12 months.
  3. Lastly, know that there are two (2) types of personal loan interest rates, namely fixed and variable interest rates. Fixed interest rate stays the same for the full loan term despite the fluctuations of interest rates in the market. The repayment amount is fixed by the bank and if the payer would like to pay extra, he or she will be charged an additional fee.

On the other hand, variable loan interest rate has an interest rate which changes from time to time, depending on market rates. Although, it allows you to take advantage of the time when the interest rate in the market is low, this type of interest rate can be very risky when the rates spike up in the market.

If all this information is overwhelming, get proper assistance. Agensi Kaunseling dan Pengurusan Kredit (AKPK) has a handy budget calculator at https://www.akpk.org.my/tools. The calculator allows you to calculate your total expenses (including repayments) so that you can assess your affordability when planning to apply for a personal loan. AKPK also provides free credit counselling. Appointments can be made online via https://customer.akpk.org.my/ or you could just walk in to any of AKPK branches nearest to you (check out our website, www.akpk.org.my for branch details).

Remember! Loans add to your expenses. So, be wise and prudent when signing up for one. Whether you just started work, or are nearing retirement, always live within your means.