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Basics Of Borrowing

Before borrowing, you should ask yourself what the purpose of the loan is for. It would be wise for you to keep in mind that you should  borrow to meet your needs – and not your wants.

When you want to take a loan or use a credit card to purchase something, ask yourself the following questions first :-

Is the product or service I intend to purchase a need or want?

Can I afford to pay the instalments?

If it is a substantial purchase such as a big ticket item like a house, can I put down a larger down payment?

Sure, borrowing from credit providers is tempting as it allows you to obtain money on loan or get a line of credit to enable you to buy a house, a car, pay your bills or even go on holidays.

Although a loan is beneficial, particularly in helping you pay for big purchases, it is crucial for you to keep in mind that the money you borrow is not free. Money on loan needs to be paid back with interest and penalty charges when it is repaid late!


Credit is a facility to borrow with an agreement to repay the creditor, as per the terms and conditions outlined in the contract.

Borrow for productive purposes only and for something that you really need but do not have enough cash to pay for. These include buying a house or a car, sending your children for further education or meeting emergency needs.

Borrow within your means. You should only borrow an amount that you can pay back comfortably. It is recommended that your total monthly repayments should not exceed 40% of your net monthly income (after statutory deductions including income tax, Employees Provident Fund (EPF) and SOCSO.

A borrower has a moral obligation to repay as there should be no excuses for not repaying your debts. Always bear in mind that your creditworthiness will be affected if you do not repay your loans according to the terms of repayment.

Here are some examples of productive debt versus unproductive debt:-


There are various credit providers in Malaysia. The following are common sources of borrowing:-

Licensed Financial Institutions (LFI)

LFIs, including commercial banks that are licenced by Bank Negara Malaysia (BNM), provide credit facilities to the public. You are strongly advised to borrow from a LFI as there are rules and regulations in place to safeguard your rights.



Co-operatives are regulated by the Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC). Members of the co-operatives may borrow from their co-operatives based on their eligibility and other criteria set by their management 

Licenced Money Lenders (LML)

LMLs are lenders licenced by the Ministry of Urban Wellbeing, Housing and Local Government to provide loans to the public. However, unlike LFIs, they cannot accept deposits and their interest rates are normally higher than LFIs. So, it is advisable that you always check the rates offered by these LMLs before taking a loan.

Unlicensed Money Lenders (UML)

UMLs are illegal and commonly referred to as “Loan Sharks” or “Ah Longs”. You should never borrow from UMLs. UMLs offer unsecured loans at very high interest rates with vague but strict terms and conditions. These UMLs can resort to threats and violence on borrowers who cannot repay their loans.


Islamic Banking

Islamic banking institutions are licensed by BNM and follow Syariah (Islamic principles), which prohibit Riba (collection and payment of interest), usury (the act or practice of lending money at an exorbitant interest rates), trading with financial risks and haram (unlawful) business ventures.

In Malaysia, all individuals regardless of their religious beliefs have the opportunity to choose between Conventional and Islamic banking.

Islamic banking operates according to Syariah rules on transactions, known as Fiqh al-Muamalat. The basic principles of Islamic banking include the sharing of profits and loss as well as the prohibition of Riba.

Some common concepts used in Islamic banking include profit-sharing (Mudharabah), safekeeping (Wadiah), joint-venture (Musharakah), cost-plus (Murabahah) and leasing (Ijarah).

Islamic banking products in Malaysia are monitored by the Syariah Advisory Council set up by BNM in addition to each Islamic bank’s own internal Syariah review committee.


Before you decide to get a loan for the purpose of purchase property, you need to find a suitable loan which addresses your needs.

As you are aware, a property loan is for the long term. Hence, it worth spending time to understand the workings of the loand and other factors regarding repayment.

We will discuss the next topic on what lenders will look at before releasing the loan and types of interest computation as well as how it will have an effect on your total borrowing cost.

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