Due to the number of requests, we shall also be adding two more categories to our blog namely Estate Planning and Family Law. Stay tuned!

July 12, 2009

Getting A Loan: 4 Crucial Tips


First off, sorry for the hiatus from posting… last two months have been really hectic. Due to the many queries we receive asking for loan tips, here goes:-
Read more!

1. Creditworthiness
Your creditworthiness is the most important factor in determining the success of your loan application. What the heck does that mean?
In simple terms, creditworthiness refers to your payment and financial profile. In approving loans, banks will look at:

a) Can your income sustain your loan repayment? As a general rule your monthly repayment should not exceed 40% of your monthly income (this varies with banks). So if you need to pay at least RM1000 per month on your car payment, credit cards, etc , this amount together with your monthly housing loan repayment should not exceed 40% of your monthly income. In simple mathematical terms:

(Monthly Housing Repayment + Minimum Monthly Credit Card Repayments + Car Loan Repayments + Other monthly repayments to financial institutions) < 40% of monthly income

b) Your payment profile; i.e., whether you have been paying your loans on time or have you been consistently paying late. If you constantly default for a period of more than 2 months and for more than one of your loans, most banks would consider you an “undesirable” candidate for loan approval. Basically, if you have a tendency to pay late, they feel that you will also have a tendency to pay them late if they give you the loan. Makes sense, right?

2. Paying Taxes
I know most of you hate paying taxes but a wise man once said (I can’t remember who) there are only two things in life that are certain: Death & Taxes *LOL*. Man, that wise man really cracks me up!

What has taxes got to do with loan approvals? Well for one it proves that you have the income that you say you have. Therefore, if you own a business and are thinking of fabricating payments slips as “proof of income” ...DON’T. Banks look at legal income as well so if you provide them with payslips you must back it up with your tax declaration and tax payment receipts.

3. Clean up your financial records beforehand
Before you even think about buying a property, try to clean up your financial records first to ensure that you are a desirable customer for a loan. If for some reason or other, you don’t meet the general criteria set out above, take a year to improve your creditworthiness and to improve your financial and tax records before you buy a property. If you feel really really desperate to buy that property you have been eyeing, either slap yourself silly or get someone to co-sign the loan.

4. Shop around for the right loan for you
Most people tend to rely on the bank’s officers or marketing agents to give them all the information about their taking a loan. Don’t. Understand that their primary objective is to close the deal. Or sale. They will not be looking at giving you the best deal. They are looking at getting you to accept the loan which provides their bank with the best return on the Bank’s investment. In other words, to pay the highest interest for the longest period of time.

To know which loan package suits you, you need to know yourself. Do you have regular income or is it irregular? Do you have kids? Will your income increase in the next 5 years? Do you intend to pay off the loan within a short period of time?

Did you find this useful? Want to know more? Please send us a message or email us.

2 comments:

Peter said...

Having a good financial record is very important in getting a mortgage loan. Some people think that mortgage loan application does not depend on credit card or car loan payment history, this is not true.

For more info on best home loan package in Klang Valley area, feel free to contact me:

Mortgage Loan

iqbal said...

Interestingly, credit rating is all about the ability and tendency of a person to pay / service his loans.

Having saying that, in my instance,
I'm 32 working with the government for some 7 years and change, has been recently certified by a bank to have a credit rating of 48% more or less although my income is within the 3k bracket. Why?

Because I have no loans whatsoever, no credit card history, am using a prepaid account for mobile communications and always purchase things using cash. I have savings amounting to 50k plus minus but this doesn't amount to much as banks cannot ascertain whether I'm a good paymaster or not!

My humble advice to youngsters coming into the workforce, get a small personal loan and pay it promptly or alternatively get a credit card and use it to say pay at the petrol station and promptly pay at least the minimum amount payable monthly. This will shore up your credit ratings SIGNIFICANTLY!

Of course, prudence in spending is always wise (even tho the banks don't seem to recognise this). Just my humble experience to share.