By Diana Chai

Since putting up our comparison tool on personal loans; our lines have been buzzing with activity. There’s no denying that personal loans are a hot banking product. And why wouldn’t it be? Cash is king in every situation so if you truly needed a little financial lift; having money in hand beats a credit card. For some; taking out a personal loan with a low monthly instalment amount is the easiest thing; almost akin to feeling like you are getting ‘free money’. All you have to do is fill a form and money is given to you. The minimal RM200-300 per month you pay is barely enough to get you thinking so you pay it without much attention.debt-free

But if you did calculate the total amount of interest and fees you are paying over the years; you may be tempted to rethink that loan. Read on to find out exactly how much a personal loan can cost you.

Preliminary charges

Even at the moment of taking out a loan; there are preliminary charges you may need to pay. How much these charges come up to; will depend on your bank. Typically, there are two kinds of preliminary fees: stamp duty and processing fees. Stamp duty is calculated on the amount borrowed at a rate of 0.5%. Processing fees are usually charged lump sum and the amount is usually in the region of RM50.

Example: for a loan of RM5000; stamp duties will be RM25 and processing fees RM50. Preliminary fee total will be RM75.

Interest fees and tenure

There is a large variance of interest fees depending on the bank; how much you borrow; and your current credit rating. The range starts at 7.5% up to 13.5%. Civil servants are able to take cheaper loans with non-commercial banks at rates as low as 4.5%. However, you can be sure that the longer you stretch repayment; the more interest you will be paying. The examples below consider an RM5000 loan with an average interest rate of 9% on 2 different loan tenures.

Scenario A (2 years)

Scenario B (6 years)

Monthly repayment: RM245.83

Monthly repayment: RM106.94

Total interest paid: RM900

Total interest paid: RM2700

In scenario B, though you pay approximately RM150 less than in scenario A, you’re also paying three times the interest. If you can afford an additional RM150 per month; best to clear the loan as quickly as you can.

Late penalty fees

Sometimes life just happens and you may find yourself missing your payment or being late. Even a day over your due date will result in late payment penalty fees. Late payment fees for most banks are set at 1% of the amount in arrears.

Example: if you have missed one month’s payment at (RM245.83), the late penalty fee with be RM2.46.

Early settlement fees

For banks, early settlement of your loan means they lose out on the interest they would’ve earned if you had gone ahead with the full tenure. As such, early closure of an account can result in a minimum fee of RM200 or 3% of the remaining amount – whichever is higher.* Not all banks will charge early settlement fees, but the ones that do usually follow this rate.

Example: if you have RM2000 remaining to be repaid of your principal; the early settlement fee will be RM200 (because 3% is only RM60).

Total costs

In total, as per the examples above; taking a loan of RM5000 for 6 years will result in the following fees:

  • 9% interest for 6 years: RM2700

  • Preliminary charges: RM75

  • Late penalty fee for three months of late payment: RM7.38

  • Early settlement fee (an approximately RM2000 remaining balance): RM200

  • Total: RM2982.38

As seen above, paying more than 50% of the loan amount in fees and interest is a very expensive way to obtain extra cash. If the reason you need the cash can wait; opt for a high interest savings account and save or if you really do need the lump sum quickly; endeavour to repay the loan as quickly as possible.

This was brought you by Diana Chai from RinggitPlus.com. RinggitPlus compares credit cards, debit cards, balance transfers and personal loans to help Malaysians get more for their money.


    2 replies to "How much your personal loan is costing you?"

    • […] his way to pay out his loans and live a better life. This is a common mistakes that people do with personal loans and Adam is not alone. Write us your story to enlighten other […]

    • Amanda

      I have a college age daughter. My wife and I dearly love her and enjoy her company. She is saving money by living with us while attending college and we have told her that, whether she has a job or not, she is welcome to live with us as long as we are living in the future. When she graduates from college, we will work on helping her get her school loan paid off. People have to get over this idea of you have to kick the kids out when they first go off to college. If they get some sort of great job and want to go off on their own, that is up to them, however, if they are struggling, there should be no shame in living with Mom and Dad for as long as it takes. I think that some savage beasts, out in the wild, treat their offspring better than some humans treat theirs. By the way, this poor economy is probably going to be wth us for quite some time to come. People should be willing to to what they reasonably can to help family members because the government cannot do it all and things could get worse before they get better if ever.

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