[This is a sponsored article with Citibank.]
Seeing how easy it is to access, it’s no surprise that some may make this commitment to get cash quickly because of misconceptions about how they work.
At the same time, in this current economic context, personal loans may be a viable option to consider in the right circumstances. Here is a breakdown of the key information you need to know about it.
What are personal loans?
In short, personal loans are sums of money that you can borrow for various 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 the secured, while unsecured loans do not require a collateral.
Dictionary time: Collaterals are assets that lenders accept as collateral for the loan and could be a car, a house, stocks, jewelry, collectibles, future paychecks, and so on.
Some common reasons why do people take out personal loans? medical issues, debt consolidation, home renovation or improvement costs, weddings and education.
According to the team of Citibank, most of its customers apply for personal loans due to emergency situations and the need for cash. Apart from that, however, there are borrowers who have taken out personal loans to renew, educate, and so on.
Advantages of personal loans
1. Help structure and plan your budget and finances
Personal loans have a flexible tenure that is accompanied by fixed installments, which is useful for the borrower in order to distribute the payment schedule.
For Citi personal loans, you can choose 24, 36, 48 or 60 months as a repayment tenure, but keep in mind that the longer it is, the more interest would have to be paid over the life of the loan.
There is a common misconception that having a personal loan can negatively affect your credit score. However, if you can follow a consistent payment plan, it won’t be a problem.
2. It can be used for almost anything
Undoubtedly, among all types of loans, personal loans are the most important flexible as to what you can use it for. It is not tied to any kind of commitment you pay for, unlike car loans, mortgage loans, student loans and the like.
The general rule is to do this never take out a personal loan if you don’t have a solid plan to repay, and think about how your expected revenue would match your payment history.
3. Allow debt consolidation and interest savings
Because you can use personal loans for just about anything, some people consolidate all your debt and use a personal loan to pay off all the collective debt at once. That way, you only have one monthly payment to track instead of multiple payments to different creditors.
In addition, personal loans could save you moneyand if it has a lower interest rate than the other debts to which it was linked, especially credit cards. This means that you can also 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 of other options revealed rates ranging from 3.99% to over 18%, so make sure you do the proper due diligence before committing to one. To get started, you should be clear about the Terms and Conditions if the rate is applicable to a certain amount of tenure or loan and you should also consider the applicable fees.
4. Access to cash fast without guarantees involved
As mentioned, personal loans are useful in emergencies where you may not have an emergency fund or insurance to cover unexpected expenses such as medical bills.
However, with great power comes a great responsibility, and borrowers do discouraged use personal loans for luxuries or non-essential purchases, even if you have a great need for a vacation (once we can travel safely).
Personal loans usually have quick approvals and, in the case of Citibank, they also have conditional immediate approval. Citibank personal loans are also unsecured, so there is no collateral involved. Since there is no collateral or guarantor, there is no need to risk losing valuable property like car or house. However, the delay penalty would be 1% per annum on the overdue amount.
Example: Alif contracted a loan amount of RM 10,000 and has a monthly repayment of RM 1,000. If you have been delaying your first scheduled payment for 11 days, you must pay an additional charge of RM 0.30, which is your late fee. This is calculated by taking 1% of your due payment, dividing it by 365 and multiplying it by 11, which is the number of days you arrive late.
To apply, your loan must be a minimum of RM5K and “new to banking” customers can reach up to RM120K, while existing customers can apply up to RM150K.
Citibank requires a minimum income of 4,000 RMS per month or 48,000 RMS per year to qualify as an applicant, salaried or self-employed. If you are self-employed, your company must be established for at least two years and applicants must be between 21 and 60 years old at the time the loan matures and be citizens or service consultants working at Malaysia.
Disadvantages of personal loans
1. It can cause potential damage to your credit score
In terms of credit score, personal loans could be a double-edged sword. If you’re not good at making constant payments, you could take out a personal loan damage your credit score.
Therefore, it’s important to think about whether your payment history in the past has had a pattern of regular or unpaid late payments.
It’s also important to remember that if you take out a personal loan and make several late payments, your damaged credit score could be reduce your indebtedness for other lines of credit in the future or even apply for another financial product.
2. Increased debt due to lack of financial discipline and literacy
Another double-edged sword in personal loans is that it requires you to have good financial discipline with monthly payments; if you are a bad payer, this type of loan can lead to unnecessary debts.
Also, while consolidating all of your debt into one is a more efficient way to manage your finances, it is critical. check if interest rates are really lower that if you pay multiple creditors. Otherwise, you will end up paying more interest in the long run.
That said, one should be careful not to take out personal loans for luxuries that cannot be repaid with what they already have. After all, it’s not fun to go into debt just to enjoy yourself.
3. Potentially has strong financial sanctions or legal ramifications
Now the downside of not having any collateral involved is that you can’t swap your car or house with the lender if you’re having trouble making your payments.
First, your interest rates will continue composting. Some Malaysian banks may also raise your interest rates to make you take repayments more seriously.
The worst is the worst: your creditors can file bankruptcy against you and you could lose your assets and your right to leave the country. In addition, you could be sued if the bank can seize 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 early, you will need to be financially disciplined and properly plan your budget for at least the next two years (if you choose the shortest stay period).
If you wish to repay the full outstanding amount 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 that you should know before subscribing to any loan plan.
On the fence: 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 customers who want to get a lump sum and have a clear visibility into how much they can afford to pay monthly. If you do not fall into this category, personal loans may not be the best solution for you.
See alternatives: If you’re looking for credit cards to make payments for your purchases, Citibank currently offers a Citi Cash Back Card, so users can get up to a 10% refund on Grab, groceries, dining and gas when they meet the minimum monthly expense.
In addition, there are also Citi Rewards points in Taobao, Lazada, Amazon, large supermarkets and department stores under its Citi Reward Cards.
New Citi credit card members interested in registering are also eligible for the RM500 Touch ‘n Go eWallet credit. The campaign is valid until August 31st from August 21st.
Last words of advice
The main takeaway is to make sure you apply for a personal loan with one solid payment plan, and that you are do not take out this loan for non-essential or non-urgent reasons like luxuries or vacations. Taking care of your money and debts is something that everyone should consider more seriously now than ever.
- You can learn more about Citi personal loans here.
- Disclaimer: The above content is based on the opinion and research of the writer. Before making key financial decisions, make sure you perform the necessary due diligence.