[This is a sponsored article with Citibank.]
Seeing how easy it is to access them, it is no wonder that some may accept this commitment to get money fast due to misconceptions about how they work.
At the same time, in today’s economic climate, personal loans can be a viable option to consider in the right circumstances. Here’s a breakdown of the key information to know about them.
What are personal loans?
In short, personal loans are sums of money that you can borrow for a variety of reasons and are offered by banks, credit unions, or online lenders.
There are two types of personal loans: secured and unsecured. A collateral is needed for secured ones, while unsecured loans do not require collateral.
Dictionary time: The guarantees are assets accepted by lenders as collateral for the loan, and could be a car, house, stocks, jewelry, collectibles, future paychecks, etc.
Some common reasons Why do people take out personal loans? medical issues, debt consolidation, renovation or home improvement costs, weddings, and education.
According to the team of Citibank, most of its clients apply for personal loans due to emergency situations and need for cash. However, apart from that, there are borrowers who have obtained personal loans for renovation, education, etc.
Advantage of personal loans
1. Help structure and plan your budget and finances
Personal loans have a flexible tenure that comes with fixed installments, which is helpful for the borrower to plan their repayment schedule.
For Citi personal loans, you can choose from 24, 36, 48 or 60 months as a payment tenure, but keep in mind that the longer the tenure, the more interest you will have to pay over the life of the loan.
There is a misconception that having a personal loan can negatively affect your credit score. However, if you can stick to a consistent payment plan, this won’t be a problem.
2. Can be used for almost anything
Of all the types of loans, personal loans are possibly the most flexible in terms of what you can use it for. It is not tied to a type of commitment that you are paying for, unlike auto loans, home loans, student loans, and the like.
The general rule is never apply for a personal loan if you don’t have a solid repayment plan, and think about how your expected income would match your payment schedule.
3. Allow debt consolidation and save on interest
Because you can use personal loans for almost anything, some people consolidate all your debt and use a personal loan to pay off all your collective debts at once. That way you only have one monthly payment to keep track of instead of multiple payments to different creditors.
Also, personal loans save moneyand if it has a lower interest rate than the other debts it was linked to, especially credit cards. This means that you can also potentially reduce the amount you pay for monthly installments.
Citi personal loans have competitive rates ranging from 5.33% to 9.80% per annum. A quick search for other options revealed rates ranging from 3.99% to over 18%, so be sure to do your due diligence before committing to one. To begin with, you need to be clear about the terms and conditions, whether the rate is applicable to a certain tenure or loan amount, and also take note of the applicable fees.
4. Access to fast cash without guarantees.
As mentioned above, personal loans are useful in times of emergency when one may not have an emergency fund or insurance to cover unexpected expenses like medical bills.
However, with great power comes great responsibility, and borrowers are discouraged use personal loans for luxuries or non-essential purchases, even if you absolutely need a vacation (once we can safely travel).
Personal loans generally have quick approvals, and in the case of Citibank, they also have a conditional instant approval. Citibank personal loans are also unsecured, so there is no collateral involved. Since there is no collateral or collateral, you don’t have to risk losing valuable assets like your car or home. However, the penalty for late payment would be 1% per annum on the overdue amount.
Example: Alif took out a loan of RM10,000 and has a monthly repayment of RM1,000. If you are 11 days late on your first scheduled payment, you have to pay an additional RM0.30, which is your late fee. This is calculated by taking 1% of your payment due, dividing it by 365 and multiplying it by 11, which is the number of days you are late.
To apply for your loan, your loan will need to be a minimum of RM5K, and ‘new to the bank’ customers can get up to RM120K, while existing customers can borrow up to RM150K.
Citibank requires a minimum income RM4,000 per month or RM48,000 per year to qualify as an applicant, salaried or self-employed. If you are self-employed, your business must be established for at least 2 years and applicants must be between 21 and 60 years old at the time of loan maturity, and be citizens or PRs working in Malaysia.
Disadvantages of personal loans
1. It can cause potential damage to your credit score
In terms of your credit score, personal loans could be a double-edged sword. If you’re not good at making consistent payments, applying for a personal loan could damage your credit score.
Therefore, it is important to think about whether your past payment history has had a regular pattern of late payments or defaults.
It’s also important to remember that if you take out a personal loan and make multiple late payments, your credit score could be damaged. reduce your loan power for other lines of credit in the future or even request another financial product.
2. Increased debt due to poor financial discipline and literacy
Another double-edged sword in personal loans is that it requires good financial discipline with monthly payments; If you are a bad payer, this type of loan could generate unnecessary debt.
Also, while consolidating all of your debts into one is a more efficient way to manage your finances, it is crucial that check if the interest rates are really lower than if you paid multiple creditors. Otherwise, you will end up paying more interest in the long term.
That said, one should keep in mind that you should not borrow personal loans for luxuries that you cannot pay with what you already have. At the end of the day, it’s no fun going into debt just for fun.
3. Potentially has heavy financial penalties or legal ramifications.
Now, the downside to having no collateral involved is that you can’t trade your car or home with the lender if you’re having trouble meeting your payments.
First, your interest rates continue composing. Some Malaysian banks may also increase your interest rates so that you will take your repayments more seriously.
The worst comes to the worst, your creditors can file for bankruptcy against you and you could lose your assets and your right to leave the country. Also, you could be sued where the bank can garnish your wages, place a lien on your property, and freeze all or part of your money in the bank.
4. Includes an early settlement fee
Because you will be charged if you pay off your debts earlier, you will need to be financially disciplined and budget properly for at least the next two years (if you choose the shorter holding period).
If you want to refund the full amount outstanding in advance, you should be prepared to cover the cost of the early settlement fee. These details and more will be part of the terms and conditions, which you should be familiar with before signing up for any loan plan.
On the fence: it comes with fixed payments
We cannot classify this as a direct advantage or disadvantage, because it depends on your circumstances and spending habits.
Basically, personal loans are suitable for clients who want to get a lump sum and have a clear visibility of how much they can pay monthly. If you do not fall into this category, personal loans may not be the best solution for you.
Looking for alternatives: if you are looking for credit cards to make payments on your purchases, Citibank currently offers a Citi Cash Back Card, whereby users can earn up to 10% cash back, food, meals and gasoline when they reach the minimum monthly expense.
Besides that, there are also Citi Rewards points in Taobao, Lazada, Amazon, major supermarkets and department stores under your Citi Rewards Cards.
New Citi credit cardholders interested in signing up are also entitled to RM500 Touch ‘n Go eWallet Credit. The campaign is valid until August 31, 21.
The main conclusion is to make sure that you apply for a personal loan with a solid payment planand you are not take out this loan for non-essential or non-emergency reasons like luxuries or vacations. Taking care of your money and your debts is something everyone should consider more seriously now more than ever.
- You can learn more about personal loans from Citi here.
- Disclaimer: The above content is based on the opinion and research of the writer. Before making any key financial decisions, be sure to perform the necessary due diligence.