Personal Finance (August 2010)

I think it is only fair if I share some of my knowledge in this area, in which even older adults, our parents or lecturers, have little knowledge of. You may ask them about this topic, and they may tell you what they know.....few years ago. Banks are just like any other businesses, with the main objective of maximizing profit. Therefore, their policies and regulations are always changing, being influenced by economic, competition and political factors. We, bankers, who are in this industry is always up-to-date with the latest information. I have only been working for one year in the bank, yet the bank has changed its policies for about 3 times already. And they are going to change again next month too.

WARNING: DO NOT READ THIS, IF YOU'RE EXPECTING MILD ENTERTAINMENT AND DO NOT WISH TO PLAN FOR THE FUTURE YET.

There are two basic factors in which the bank consider and evaluate before approving your loan.

1) Your capability to pay

This refers to your income. If you are a :

a) Salary-earner : Salary earners refer to employees working under an organization/company with a fixed amount of income every month. You need to have at least 3 months payslips with your salary being credited the exact amount in your bank statements. If you have EPF, make sure it's being shown consistently in your EPF statements. The banker will check the amount on your payslips, bank statements and EPF statements to see if the amount tallies. You may also include your income tax statements (also known as Borang B/Borang BE/Borang EA) with payment receipts to prove that your earnings are legal and genuine. ( as you have declared to the government)

b)Self-employed/Commission Earner/ Having own business : Self employed can be referred to freelancers such as freelance writer, consultants, tutors, insurance agents, direct sales agents or having some kind of business. As your income is inconsistent and your are unable to provide payslips as proof of income, your most important document is income tax statements. It is important that you declare tax, or else you will find difficulty in obtaining bank loans because you cannot prove that you are actually earning. Let's say for starters, fresh graduates, perhaps you can declare RM3000 per month? Which is about RM36 000 a year. We will only have to pay tax if our income exceed RM3000 per month. And of course, if you declare higher, it means that you have higher capability to pay, thus can obtain higher loan.

Debt-income ratio (DIR)

• Your total debt must not exceed 70% of your total income. For example, if you earn RM3000 a month, you must not have debts (car, property, personal, credit card loans) exceeding RM2100. However, for the bank I am working for, they actually allowed DIR of not more than 80%.

2)Your credit risk

• You must at least have a credit card if you want to apply for property, personal or business loan. And once you have a credit card, make sure you use it and pay consistently every month. This is important because the bank would not want to lend to people who do not have experience in handling debt. Most people would think, "Oh no, I don't want to have a credit card, later I simply spend". If you pay within the month itself, you will not be charged interest, only annual fee. Interest per annum is around 12%-15%, which means around 1%+ a month.
• Your credit history, this will be shown in CCRIS report. CCRIS report shows how well you handle your debts, if you default more than twice in the last six months, it is most unlikely your loan will be approved. If you're blacklisted, your name will appear in CTOS. Don't even think about applying loans, you have to clear your debts and get a letter from Bank Negara Malaysia and show good credit payment for the next six months.

Alright, I shall stop boring you with the excess details in eligibility in obtaining loans. This is a brief information for the type of loans out there.

Personal loan:

• Interest rate is around 8%-13% per annum, depending on your credit risk. Maximum loan payment period is 5 years. Usually approval in about a week. It can be straight-line or reducing balance calculation.
• You can borrow five times of your monthly income or if you have a credit card, take the limit of your credit card, divide it by 3, then multiply by 5. The credit card calculation actually enables you to borrow more.
• To be honest, I don't quite see why we, fresh graduates need to get a personal loan. Down payment for a car? Marriage? Vacation? Further studies? Lol?

Property loan:

• This gotta be the cheapest rate of all types of loans. Because it is known as secured lending. In any case of default, the bank can take back the property.
• Interest Rate: Depends on the bank, usually it's BLR-1.5% up to BLR-2.4%, depending on the loan amount. (*Current BLR=6.3%, just use this amount to minus. Eg, BLR-2%; which means 6.3%-2%=4.3%, 4.3% is the interest rate charged.)
• Loan margin: 90% of your property purchase price. Which means you have to bear the minimum of 10% yourself.
• Loan tenure : Maximum 30 years, up to 70 years old.
• The "quality" the property is measured by MF (Marketability Factor). The minimum MF must be at least 6-6.5/10. Banks will not finance properties which are not marketable.
• The property market is booming recently. There a bubble predicted to be happening. Properties are selling like hot cakes now, and their prices are shooting up very high. Would be the perfect moment and sell at this time. Investors are speculating the future property market, which looks promising by the speed of property units being snapped up and the greater appreciation value.

Car loan:

• I am most uninterested to talk about this. Car value depreciates about 20% a year, the foreign cars in our country is overpriced (not only foreign, local also. Even proton cars sell cheaper in UK than in Malaysia) and it affects our DIR. If you have recalled, if you buy a car and get a car loan, it will increase your debt, thus increase your DIR, which reduces your chances of getting loan for potentially high-return properties.
• Anyway, we silly naive youngsters would still love to show off with cars and all. Here you go, with the information.:

1. Up to 90% for new purchase or less than 5 years old car. For 6 to 10 years, you can borrow up to 85%. For more than 10 years, buy with cash lah.
2. Interest rate : 2% to 4% per annum. The longer your loan period, the higher the interest you pay. But then again, if the shorter your loan period, the lower the interest paid, the higher installment you have to pay a month. :D
3. Maximum 108 months, (9 years). Finance students, bring out your financial calculator to compute the monthly payments.
4. You only need photocopy I/C, 3 latest months payslips with latest 3 months bank statements and the receipt for the down payment of your car.

Business Loans

• This is the hardest loan to obtain. Minimum 3 years in operation. Minimum at least RM1million sales turnover for the last 2 years. For start-ups, very difficult to get unless you charged your collateral with your loan or bear higher interest. Repayment period is 5 years. Very risky to take this loan if you ask me, unless your business is well-established.
• Interest rate : Similar to personal loan, depending on your credit risk. You can obtain as low as 6% per annum if the government suddenly launch some economy stimulation package plan or being supported by CGC. (Corporate Guarantee Corporation) Otherwise, the usual rate is above 9.9% above.
• If you are truly interested in getting the best deal for business loan, email me or leave a message.
• For young people who are inspired to start a business or plan to expand their business, consider getting personal loan or refinancing your property as another option.

So, my dear friends, you can start planning for your first car or property. If you want a car, save at least 10% of the purchase price and work for at least 3 months. If you want a property, start declaring your income tax for the 2 years and have a credit card. Best wishes to the visionaries who actually read this whole thing. Cheers.