Personal Loan Glossary
Accrued Interest
This is the interest that you will have to pay, which may be fixed or it may increase over time. This varies from bank to bank.
Annual Fees
This is the fee that is charged by the bank for maintainence of your loan.
Effective Interest Rate (EIR)
When you compare personal loans, look at effective interest rates (EIR) instead, as this rate factors in all fees. The EIR of a loan reflects the true cost of taking that loan, by taking into account the frequency of repayments.
Balance Transfer
A balance transfer happens when you transfer your credit card balance or loan balances into one account. The benefit of doing so is the lower interest rate you will enjoy, or some balance transfer products offer a 0% interest grace period for about 6 to 12 months.
Borrower
A borrower refers to the person who has applied for the personal loan from a bank.
Cancellation Fees
This is a fee that is imposed when you cancel your account or loan before the tenure is over.
Collateral
Collateral is only applicable with a secured loan such as your mortgage loans or car loans. If for any reason you are unable to pay your loan, the bank has the right to repossess your assets. Essentially, this means that the collateral does not belong to you until your loan repayment is complete.
Conversion
Conversion happens when you transfer debt to another account within the same bank.
Credit Limit
This is the maximum limit that you are eligible to borrow from the bank.
Credit Line
A credit line, more commonly a personal loan in Malaysia, provides you with extra cash when you need it.
Credit Rating
Also known as your credit score, this tells bank how reliable you are with your loan repayments. It is a good health check of your financial security and will determine if your loan is approved or rejected.
Credit Report
Part of reviewing your credit rating is also taking a look into your credit report. This is a record of your credit history and this is issued by Credit Bureau Malaysia to the banks, upon request. Think of it like your report card.
Default
To default means to fail to make your monthly repayments on your loan. If you default on your loan, especially if it is a secured loan, the bank will reposses your assets that serve as collateral.
Early Redemption Charge
The bank may charge an early redemption fee for any early repayment of your loan. In Malaysia this tends to be between 2% to 3% on your approved loan amount.
Effective Interest Rate
The effective interest rate (sometimes called EIR) is what you should look out for when comparing loans. This is because the EIR takes into consideration the compounding interest, processing and handling fees, which comes up to what you actually pay on your loan.
Fixed Rate Loan
A Fixed Rate Loan offers an interest rate that is fixed throughout your loan period, and it does not change throughout the years.
Grace Period
Balance transfer loans offer grace period, which is a period of time that you can enjoy the loan interest-free. This can be anytime between 6 months to 12 months and differs from bank to bank.
Late Payment Fees
This is essentially a fee that is charged to you by the bank when you make late repayments.
Lender
In contrast to the borrower, the lender is the bank or financial institute that issues the loan.
Loan Tenor
This is basically the loan period, which is the amount of years you have applied for to repay your loan amount. For instance, if you apply for a 5-year loan, your monthly repayment will be broken down into 5 years.
Minimum Sum
A minimum sum in a personal loan is similar to the minimum repayment amount in a credit card. This is the minimum repayment you have to make.
Monthly Repayments
This is the repayment amount you make every month to the bank for your loan and will usually include a percentage of the interest.
Personal Instalment
A personal instalment means that you will enjoy a fixed monthly instalment that you need to repay over a period of time.
Secured Loan
Some examples of a secured loan include your mortgage loan or car loan. It basically requires you to offer an asset as collateral in the event that you are unable to repay your loan, the bank has the right to reposses your collateral.
Total Amount Payable
The total amount payable include all the various fees and charges including your interest rates, processing fees, and the principal amount of your loan.
Unsecured Loan
A personal loan and credit card are some forms of unsecured loans in Malaysia. This means you are not required to put up an asset as your collateral, your income amount and credit score history will serve as financial health checks for banks when they decide to approve or reject your application.

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