We all wish that we can be rich and free from money matters. Thing is, for most of us, our wealth is grown from scratch, and not inherited. This might mean that you start out with small incomes and limited disposable funds at a time in life when you really should be hustling to create a strong foundation for yourself. But don’t worry – that’s where personal loans come in!
Why Use Personal Loans?
First off, personal loans are not meant for you to indulge in your latest unnecessary wants. Rather, you should take out a personal loan when you’re looking to finance something really big that’s currently out of your saving abilities, which has at least a somewhat concrete planning to generate income for you. Sometimes, you might also turn to personal loans to fund emergencies like an unexpected illness that isn’t fully covered by insurance. But what happens when your income is meagre and barely above the minimum wage?
Typical Minimum Income Requirement
In Malaysia, most personal loans come with a minimum income requirement ranging between RM18,000 and RM36,000 a year. This means you have to make between RM1,500 and RM3,000 monthly in order to be eligible for a personal loan. However, this isn’t set in stone: there are loans that cater to people who earn even less than that, though they may require extra guarantees that the financiers will get their money back. In general, this minimum income requirement will vary between banks, loan products, employment status, and the loan tenure you’re opting for.
Your employment status matters to the banks as it indicates the reliability of your income and therefore your ability to finance your personal loan. A salaried employee receives a basic salary every month, and is therefore expected to have a steady stream of income to repay the personal loan. Are you earning a low income because you’re a first-time, self-employed entrepreneur? That’s okay, there still are personal loans available to you as a self-employed individual – you might just need supporting documents like tax forms, business registration information, or maybe even a guarantor to get your personal loan through.
If you’re worried about stretching your ringgit too thin in the immediate future, you may consider a longer tenure for your personal loan, so that you pay a little less each month in installments. Some banks offer you the ability to repay your loan in advance, on the off-chance that your quality of life improves and you have more cash to spare. Just read the fine print in advance to discover any terms and conditions that might come with early repayment, such as additional fees or a minimum advance notice. Bear in mind, though, the next point in this article: interest rates.
In general, the longer the tenure, the higher the amount you need to pay in interest for your personal loan. This is because interest is generally charged as a percentage per annum on the remaining balance. Therefore, although a longer-tenure personal loan looks to have a lower interest rate, you may end up paying more (due to interest incurred per year) than if you were to go for a higher-interest rate, shorter-tenure personal loan instead.
Personal loans mean handling credit on a long-term basis. You have to ensure that you’re well-prepared to handle living life in debt, and most importantly, you must have a plan to gradually and consistently pay off that debt so that it won’t affect your credit score!