No matter how responsible you are with your finances, you’ll sometimes find that your regular income just isn’t enough for some things. Expensive payments like major home repairs and sudden medical treatments might require you to use credit to pay for them. Credit cards might seem like a good idea for things like this, but they charge higher interest rates than personal loans. For financial needs like these, a personal loan can be a powerful tool. But where should you get one from? Many people prefer going to big banks with good reputations, but others may rely on licensed moneylenders instead. Each one has its own tradeoffs, and in this article, you’re going to learn what they are so that you can make an informed decision should you ever need a personal loan.
What Banks and Lenders Have in Common
Be it a bank or a licensed moneylender, both share one thing in common: they want to make sure that you’re able to pay them back if they give you a loan. This is called assessing your creditworthiness, and it’s usually done by looking at a few different things. First, they may look at your pay slips to ensure that you have a stable income that you can use to pay them back with. Then they may even look at your credit score since that’s a clear indicator of how well you manage the credit you already have.
The process for getting a personal loan approved by either a bank or a lender can be quite different between the two, and we’re going to see why.
Getting A Personal Loan from A Bank
Big banks are recognized and trusted. So for most people, that’s the first place they look when they need to secure a personal loan. This can be a good idea since banks are usually able to provide you with higher amounts of financing and for much longer terms. Banks can afford to do this because they make their profits from many different financial products that they offer to customers, not just with personal loans. This fact also means that banks can afford to take more time when looking at your creditworthiness and in deciding whether or not they want to approve your application. You might end up waiting a little longer before you find out whether or not they’re going to give you the funds you need. Since there’s a bit of a waiting period involved, banks may not be ideal for you if you need the money urgently.
What About Licensed Moneylenders?
When it comes to licensed moneylenders, the dynamics are slightly different. Lenders tend to focus their business on only one thing: giving out personal loans. Because of this, they may not be able to give you as much financing as a bank would. Even if they could, they’re also required by law to only give out loans up to a maximum amount. On the plus side, they may not be as strict as banks when it comes to approving loan applications. After all, since their business is focused only on lending, they need to give out loans to survive. Since they’re less stringent when determining your creditworthiness, they may approve your request much faster than banks would. For all of these reasons, lenders are a good option if you only need a small loan and you need it quickly.
Don’t Go to Loan Sharks or ‘Ah Longs’!
When it comes to lenders though, you need to be extra cautious. No matter how desperate you may be for money, it’s never a good idea to go to an unlicensed moneylender. Also known as loan sharks or ‘Ah Longs’, they operate illegally and charge interest rates so high that borrowers find it impossible to pay back. Every few months in local newspapers, we see many horror stories of people who suffer from their collection tactics like intimidation and blackmail.
So why do people still go to loan sharks? Some people go to loan sharks out of pure desperation, needing the money but having nowhere else to get it. However, there are sometimes when it is actually quite unclear if a moneylender is licensed or not. This is why you must always do your research on the lender first. Check their background and their reputation to know whether or not they’re legitimate.
How to Stay Safe
In Malaysia, licensed moneylenders come under the Ministry of Urban Wellbeing, Housing, and Local Government. On the Ministry’s website, you’ll be able to check whether a lender is licensed or not. Other than ensuring that they’re licensed, it’s always a good idea to try and find out how other borrowers have felt when doing business with them. Check online to see if there’s any information on them, or ask your friends and family if they can recommend you a lender that they trust.
So which one is best?
So let’s summarize everything we know so far. First, you should know that banks aren’t the only place you can go to get a personal loan. If it’s a big loan and you’re willing to wait a little longer for it, then banks are a great choice. Their reputable names may even give you more peace of mind when dealing with them. However, if you need a small loan and you need it urgently for something like an emergency, licensed lenders might be more suited to your situation. As with any other type of credit, make sure that you do your research first. Never rush to sign anything, always read the fine print, and be sure to use the money you receive wisely!
To easily compare your options from different lenders, check out CTOS Credit Finder. Here, you’ll be able to see all your options and compare them in one place, making the entire process less stressful and much easier for you.