Loan terms, explained simply

The words you'll meet in loan offers and agreements, in plain language. Each one links to related terms.

Annual percentage rate (APR)

The interest rate on a loan expressed per year, so loans of different lengths can be compared on the same footing.

In Malaysia, moneylenders state interest as a rate per year (p.a.). The annual rate lets you compare a 12-month loan with a 36-month loan, or a daily-rate loan with a monthly one. A monthly rate of 1% is 12% p.a.; a daily rate of 0.05% is 18% p.a. when the year is counted as 360 days.

The annual rate only compares fairly if both lenders calculate it the same way. A 10% flat rate and 10% on a reducing balance are very different costs: on RM 10,000 over 12 months, 10% flat costs RM 1,000 in interest, the same as about 17.97% on a reducing balance. Always ask which one you're being quoted, and ask for the total amount payable.

Our rate is an annual rate on a reducing balance: 4.9% p.a. for every term from 3 to 108 months. Every approved customer pays this rate; your assessment decides whether you're approved and how much we can lend. Under the Moneylenders Act 1951, unsecured moneylending loans are capped at 18% p.a. In practice that cap is applied as a flat rate on the original amount, so a moneylender quoting more than 18% flat on an unsecured loan is a warning sign. Compare like with like: 18% flat over 12 months works out to about 31.72% p.a. on a reducing balance.

How the annual rate turns into interest on our loans: for each monthly instalment, interest = outstanding balance × annual rate ÷ 12, rounded to the sen. On RM 10,000 at 4.9% p.a., the first month's interest is RM 10,000 × 4.9% ÷ 12 = RM 40.83. Interest is counted by the day (annual rate ÷ 360) only for short-term loans and when you settle or prepay between due dates.

Flat rate

Interest worked out once on the full original amount for the whole tenure, even though you repay part of it every month.

Flat-rate interest = principal × flat rate × number of years. For example, RM 10,000 at 10% flat over 12 months is RM 10,000 × 10% × 1 = RM 1,000 of interest, repaid as 12 instalments of RM 916.67.

Because you keep paying interest on money you've already repaid, a flat rate costs much more than the same number on a reducing balance. Those RM 10,000 at 10% flat work out to about 17.97% p.a. on a reducing balance. For comparison, our 12-month rate of 4.9% p.a. on the same amount costs RM 267.40 in interest.

A common misunderstanding is that a flat rate is always a bad deal. It isn't: a low flat rate can still be competitive. RM 20,000 at 3% flat over 24 months is RM 1,200 of interest, about 5.66% p.a. on a reducing balance. That is a fair rate, though still more than the RM 1,036.76 the same amount costs at our 4.9% p.a. The point is to convert before you compare, and to check for fees deducted from the payout. Hire purchase for cars is usually quoted as a flat rate. Bank Negara Malaysia has announced that, from 2027, banks will have to stop using flat-rate and Rule of 78 calculations for personal financing.

Use our Flat rate converter under Calculators to see the reducing-balance rate behind any flat-rate quote.

Effective interest rate

The yearly cost of borrowing measured against what you actually still owe each month, which makes it the fair basis for comparing offers.

An effective rate (also called a reducing-balance rate) charges interest only on the outstanding balance. It reflects the real cost of a loan, so it's the number to use when comparing offers.

To compare a flat-rate quote with an effective rate, convert it. RM 20,000 at 5% flat over 24 months has instalments of RM 916.67 and RM 2,000 of interest, which is the same as about 9.32% p.a. effective. Our Personal Loan rate is 4.9% p.a. effective for every term, so in that case ours would cost less, even though 5% sounds lower.

Our rates are already quoted on a reducing balance, so the rate in your offer is the effective rate. You don't need to convert it.

Reducing balance

A way of charging interest only on the amount you still owe, so the interest part of each instalment falls as you repay.

Each instalment first pays the interest for that period, and the rest reduces the principal. As the balance falls, so does the interest, and more of each instalment goes to the principal.

Example: RM 10,000 at 12% p.a. over 12 months gives instalments of RM 888.49. In month 1, interest is RM 100.00 (RM 10,000 × 12% ÷ 12) and RM 788.49 goes to principal. By month 12, interest is only RM 8.80. Total interest is RM 661.86, compared with RM 1,200 at a 12% flat rate.

Our instalment loans work the same way: equal monthly instalments, and for each scheduled instalment the interest is the outstanding balance × annual rate ÷ 12, rounded to the sen. The last instalment clears whatever balance is left. Because interest follows the balance, an extra payment lowers the interest in every instalment after it.

Daily interest

Interest counted by the number of days, at the annual rate ÷ 360. We use it for short-term loans and for settling or prepaying an instalment loan between due dates.

Daily interest = amount × (annual rate ÷ 360) × number of days. On our short-term loan at 4.9% p.a. (about 0.0136% a day), RM 2,000 costs about RM 0.27 of interest a day: RM 3.81 for 14 days, RM 8.17 for 30 days. Because interest is counted by the day, repaying sooner costs less: repay that RM 2,000 on day 14 instead of day 30 and you pay RM 3.81 instead of RM 8.17.

Our instalment loans don't charge interest day by day. Each scheduled monthly instalment carries interest of the outstanding balance × annual rate ÷ 12. Daily interest only comes in if you settle or prepay between due dates: you then pay interest for the days since your last due date. Example: on RM 10,000 at 4.9% p.a. over 12 months, the balance right after the 6th instalment is RM 5,061.10. Settling 10 days later adds RM 5,061.10 × 4.9% ÷ 360 × 10 = about RM 6.89. That's why a settlement amount changes from day to day, so ask for the figure on the day you plan to pay.

A small-looking daily rate can hide a high annual one: 0.1% a day is 36% p.a. Always convert a daily rate to a yearly one before comparing.

Instalment

The fixed amount you repay each month, made up of part principal and part interest.

With equal monthly instalments, you pay the same amount every month, but the mix changes. The interest part of each instalment is the outstanding balance × annual rate ÷ 12, and the rest repays principal. Example: RM 10,000 at 4.9% p.a. over 12 months is RM 855.62 a month. In month 1, RM 40.83 of it is interest (RM 10,000 × 4.9% ÷ 12) and RM 814.79 is principal; in month 12, RM 3.48 is interest and RM 852.10 is principal.

Instalments are rounded to the sen, so the last one can differ from the others by a few sen. That last payment clears the balance exactly.

A longer tenure lowers the instalment but raises the total interest. Choose an instalment you could still pay in a tight month, such as one with no overtime or commission.

Principal

The amount you borrow, before any interest is added.

Interest is charged on the principal that's still outstanding. Each instalment reduces it until it reaches zero, and any extra payment reduces it faster.

We don't charge processing or admin fees and nothing is deducted from the payout, so the principal in your agreement is the amount paid into your bank account. Borrow RM 10,000 and RM 10,000 arrives.

Watch for offers where the 'loan amount' is higher than what you actually receive because fees or 'insurance' are taken off first. You'd be paying interest on money you never got.

Tenure

How long you take to repay the loan, stated in months for instalment loans and in days for short-term loans.

A longer tenure means smaller instalments but more interest overall. Example for RM 20,000 at our rate of 4.9% p.a.: 12 months is RM 1,711.23 a month and RM 534.79 of interest; 24 months is RM 876.53 a month and RM 1,036.76 of interest; 36 months is RM 598.52 a month and RM 1,546.73 of interest.

Our rate stays at 4.9% p.a. whatever the tenure, so a longer loan costs more only because you pay interest for more months.

Pick the shortest tenure whose instalment you can afford comfortably. If your situation improves, you can still settle early without a penalty.

Debt service ratio (DSR)

The share of your monthly income that goes to debt repayments.

DSR = total monthly debt repayments ÷ monthly income × 100%. Example: you take home RM 4,000 and already pay RM 900 a month on a car loan and PTPTN, so your DSR is 22.5%. Adding a RM 15,000 Personal Loan over 24 months at 4.9% p.a. (RM 657.40 a month) would take it to about 38.9%.

Lenders use DSR to judge whether you can afford another instalment. Each lender sets its own limits and may use gross or take-home income, so the same person can have different DSRs at different lenders. A high DSR may mean a smaller amount or a longer tenure is offered.

Count instalments, not balances: the car loan instalment, housing loan, PTPTN, credit card payments and other loans. Our Affordability calculator under Calculators uses take-home pay and keeps total repayments within 40% as a cautious guide.

CCRIS

Bank Negara Malaysia's Central Credit Reference Information System, which records your loans and repayment conduct with financial institutions.

CCRIS lists your outstanding loans and credit facilities and shows, month by month over the past 12 months, whether each was paid on time. A 0 means up to date; a higher number shows how many instalments were in arrears that month. It doesn't give you a score, and it doesn't say 'approve' or 'reject'.

You can get your own CCRIS report free of charge from Bank Negara Malaysia, including online through eCCRIS. Check it before applying anywhere, so nothing surprises you.

A common misunderstanding is that any late payment means you can never borrow again. Lenders look at how recent and how serious arrears were, and whether you've caught up. After you apply, and with your consent, our licensed lending partner checks your CCRIS and CTOS reports. Calculators and enquiries don't.

CTOS

A private credit reporting agency whose report combines CCRIS data with other records and a credit score.

A CTOS report may include your CCRIS information, legal records such as bankruptcy or court cases, directorships and business interests, trade references from companies you deal with, and a credit score.

Lenders use it alongside CCRIS. With your consent, our licensed lending partner checks CTOS after you apply.

If you find something wrong, such as a settled debt still showing or a case that isn't yours, contact CTOS to dispute it and keep proof such as settlement letters. Fixing errors before you apply avoids delays.

AKPK

Agensi Kaunseling dan Pengurusan Kredit, an agency set up by Bank Negara Malaysia that offers free financial counselling and debt management help.

AKPK provides free, confidential counselling: a counsellor goes through your income, expenses and debts with you and helps you build a realistic budget.

For eligible borrowers, AKPK's Debt Management Programme (DMP) negotiates with participating lenders to restructure repayments into one affordable monthly payment, often over a longer period (in Malay, Program Pengurusan Kredit or PPK). While you're on it, credit cards included in the programme are suspended, and lenders can see the arrangement in your CCRIS report. AKPK doesn't blacklist anyone, but whether you get new credit during the programme is up to each lender, and in practice it is usually hard until you finish.

If repayments are becoming difficult, talk to your adviser early and consider contacting AKPK. Counselling is free. If you're considering the DMP, ask AKPK whether you qualify and which of your debts it can cover. Either way, it is far safer than borrowing from an Ah Long to cover a gap.

EPF (KWSP)

The Employees Provident Fund, Malaysia's retirement savings scheme; your EPF statement helps show a steady income.

Your EPF statement shows the monthly contributions made by you and your employer. Because contributions follow your salary, a regular record is good supporting evidence of income alongside payslips.

Since May 2024, new contributions for members under 55 are split across three accounts: 75% to Akaun Persaraan (retirement), 15% to Akaun Sejahtera and 10% to Akaun Fleksibel, which you can withdraw from at any time. Some savings can be withdrawn before retirement for specific purposes: Akaun Sejahtera can be used, for example, for studies at an EPF-approved institution, or for EPF-approved critical illnesses, doctor-prescribed medical equipment and fertility treatment. Conditions apply, so check the current rules on kwsp.gov.my before you plan around a withdrawal. A withdrawal costs no interest, but it reduces your retirement savings.

Self-employed people and gig workers can contribute voluntarily through i-Saraan, and the government currently tops up part of what they put in, up to an annual limit (check KWSP for this year's incentive). A record of regular contributions can also support an application.

Moneylender licence (KPKT)

A licence from the Ministry of Local Government Development (KPKT) that allows a company to lend money as a business under the Moneylenders Act 1951.

Only licensed moneylenders may lend money to the public as a business. They must follow rules on interest caps, the prescribed agreement form and how they collect. Unsecured loans are capped at 18% per year.

Your loan agreement is with our licensed lending partner, licensed by KPKT. To check any lender, use KPKT's official list or its i-KrediKom app, match the company name and licence number exactly, and check the licence is still current: a licence lasts up to two years. Licensed moneylenders are regulated by KPKT's Community Credit Control Division (Bahagian Kawalan Kredit Komuniti, BKKK), and complaints can be made through KPKT's SISPAA complaint system (aduan.kpkt.gov.my).

A licensed lender still has to behave properly: no upfront fees before payout, no keeping your ATM card or MyKad, and payout only into your own bank account. Anyone who does those things is a red flag, licence or not.

Schedule J

The prescribed agreement form that unsecured loans from licensed moneylenders must use.

Under the Moneylenders Act 1951 and the Moneylenders (Control and Licensing) Regulations 2003, unsecured loans must use the Schedule J agreement form and secured loans Schedule K; an agreement in any other form is void. The prescribed form sets out the key terms, such as the amount, annual rate, instalments and total payable, in a standard layout. Before the money is paid out, the lender must give you a stamped copy of the signed agreement (section 16).

Before signing, check that the figures match what your adviser confirmed: amount, annual rate, number and amount of instalments, total payable and the late payment terms. If anything is blank or different, don't sign until it's corrected. Our Loan agreement page lists what to check.

Stamp duty

A government tax on certain documents, including loan agreements.

Loan agreements are subject to stamp duty under the Stamp Act 1949, generally at 0.5%. Stamping makes the document admissible as evidence, and under the Moneylenders Act 1951 you must receive a stamped copy of your agreement before the loan is paid out.

Your adviser will confirm before you sign whether any stamp duty applies, how much it is and who pays it. It is separate from fees: we don't charge processing or admin fees.

Late payment interest

Extra interest charged on an instalment that's paid after its due date.

Under the Moneylenders Act 1951 (section 17), late payment interest is capped at 8% a year simple interest, calculated daily, on the overdue instalment only. The rate that applies is written in your agreement.

For example, at that cap an overdue instalment of RM 855.62 left unpaid for 10 days would add about RM 1.88 (RM 855.62 × 8% × 10 ÷ 365). The amount is small; the bigger risk is that repeated arrears lead to collection action and make it harder to borrow again. Licensed moneylenders don't participate in CCRIS, but ask your adviser before you sign whether our licensed lending partner reports repayments to any credit reporting agency.

If you think you'll miss a payment, tell your adviser before the due date. A part payment on time is better than nothing, and an early conversation gives you more options.

Early settlement

Paying off your whole loan before the end of the tenure.

To settle, you pay the outstanding principal plus interest only up to the settlement date. The interest in the remaining scheduled instalments is never charged. If you settle right on a due date, after paying that instalment, there's no extra interest. If you settle between due dates, you add interest for the days since the last due date: outstanding principal × annual rate ÷ 360 × days.

Example: RM 10,000 at 4.9% p.a. over 12 months. Right after the 6th instalment, the balance is RM 5,061.10. Settling then saves RM 72.58 of interest compared with paying to the end. Settling 10 days after that due date instead means paying RM 5,061.10 plus about RM 6.89 of interest for the 10 days.

Interest you've already paid isn't refunded, because you had the use of the money. That's why settling early saves the most in the first months. We have no early settlement penalty; ask your adviser for the exact settlement amount on the day you plan to pay, and use our Early settlement calculator under Calculators to estimate it.

Partial prepayment

Paying off part of your principal early, at least RM 1,000 at a time, so your monthly instalment goes down.

A partial prepayment reduces your outstanding principal. Your remaining instalments are then recalculated over the same number of months, so the monthly instalment goes down and the end date stays the same. The minimum is RM 1,000, and there's no penalty.

Example: on RM 10,000 at 4.9% p.a. over 12 months, prepaying RM 3,000 right after the 6th instalment lowers the instalment from RM 855.62 to RM 348.44 for the last 6 months and saves RM 43.02 of interest.

If you prepay between due dates, you also pay interest on the prepaid amount only, for the days since your last due date: prepaid amount × annual rate ÷ 360 × days. Prepaying that RM 3,000 ten days after the due date adds RM 3,000 × 4.9% ÷ 360 × 10 = about RM 4.08. Interest on the rest of the balance is covered by your next instalment as usual.

Ask your adviser for the exact amount before you pay, and for an updated statement of account afterwards showing your new instalment.

Credit limit

The maximum amount a lender is willing to let you borrow.

Your limit depends on your income, existing commitments (your DSR) and credit history. It may be lower than the amount you ask for. An offer that says 'up to RM 15,000' means you can choose to borrow less.

Being offered a limit doesn't mean you should borrow all of it. If you need RM 8,000, borrowing the full RM 15,000 means paying interest on RM 7,000 you didn't need.

If the limit is lower than you need, a longer tenure may help, but check the total interest. Paying down existing debts first can also leave more room.

Guarantor

A person who signs a legal promise to repay your loan if you don't.

If the borrower defaults, the lender can pursue the guarantor for the debt, including through the courts. Being a guarantor can also show up in your own credit reports.

Only agree to be a guarantor if you could afford to repay the loan yourself and you trust the borrower completely. Ask for a copy of the agreement you're guaranteeing.

Whether a guarantor is needed for our loans is something your adviser will tell you before you sign.

Collateral (secured vs unsecured)

An asset pledged to the lender, which it can take if you don't repay.

A secured loan is backed by collateral, such as property or a vehicle. An unsecured loan has no collateral, so the lender relies on your income and credit record. Our loans are unsecured.

Under the Moneylenders Act 1951, unsecured moneylending loans are capped at 18% per year and secured loans at 12% per year. Secured agreements use the Schedule K form.

Secured loans usually cost less but put the asset at risk. Never hand over your car grant, land title or MyKad to an unlicensed lender as 'security'.

Ah Long (illegal lender)

An unlicensed moneylender who charges extreme interest and uses threats to collect.

Common signs: ads on flyers, lamp posts, social media or unsolicited messages; 'no checks, instant cash'; an upfront fee; keeping your ATM card or MyKad; a payout smaller than the loan; and harassment of you, your family or your employer. Lending without a licence is a crime.

Never borrow from one, and never take a new loan to repay one, because the debt usually grows. Keep records of everything you've paid, make a police report if you're threatened, and get free help from AKPK with your other debts.

Before dealing with any lender, check it against KPKT's official list. If you've lost money to a fake lender, call the National Scam Response Centre on 997 straight away.

Income documents (payslips and bank statements)

Recent payslips, bank statements and similar records that show how much you earn.

Salaried applicants usually provide their last 3 months' payslips, or 3 months of bank statements showing their salary going in, and can add an EPF statement. Self-employed applicants and gig workers usually provide several months of bank statements, platform or e-wallet earnings statements, SSM registration and their e-Filing return (Borang B) if they have one.

These help confirm your income so the loan matches what you can afford. The name on them should match your MyKad and bank account.

Send documents only to our official WhatsApp number shown on our Contact page. If you'd like to cover unrelated transactions on a statement, ask your adviser first whether that's acceptable. We never need your online banking password or OTP.

SSM

Suruhanjaya Syarikat Malaysia (Companies Commission of Malaysia), which registers businesses and companies.

Common types are sole proprietorships and partnerships (registered under the Registration of Businesses Act 1956), limited liability partnerships (PLT), and private limited companies (Sdn Bhd). For a sole proprietorship or partnership, the owners are personally responsible for the business's debts; a Sdn Bhd is a separate legal entity.

Your SSM registration shows that the business is registered and how long it has been operating. Our SME Business Loan needs at least 1 year of SSM registration.

Lenders usually look at SSM documents together with business bank statements, and Borang B or financial statements, to understand the business's income.

Total amount payable

Everything you'll repay over the whole loan: the principal plus all the interest.

Example: RM 10,000 at 4.9% p.a. over 12 months has a total amount payable of RM 10,267.40: RM 10,000 of principal and RM 267.40 of interest.

It's the simplest number for comparing offers, because it captures the rate, the tenure and the calculation method in one figure. Two offers with the same monthly instalment can have very different totals if one runs longer.

Your loan agreement states the total amount payable. Check it against what your adviser confirmed before you sign. Settling early means you pay less than this total.

Statement of account

A record of your loan showing what you've paid, how each payment was applied and what you still owe.

A statement of account lists each payment received, how much went to interest and to principal, any late payment interest, and the outstanding balance.

Advisers record every payment you make, so you can ask for an up-to-date statement at any time. It's worth checking after a partial prepayment, before you settle early, or if you think a payment was missed.

By law (Moneylenders Act 1951, section 19), you can also ask in writing for a signed statement of account at any time; the lender may charge RM 3 and must provide it within one month.

Keep your own receipts for every bank transfer, FPX or JomPAY payment. If the statement doesn't match your records, raise it with your adviser and, if needed, through our Complaints page.

Debt consolidation

Taking one new loan to pay off several existing debts, so you have one repayment instead of many.

It can make sense when the new loan's rate is lower than what you're paying now, for example on credit card balances, and the single instalment fits your budget. It can also simplify things so you stop missing due dates.

It goes wrong when the new loan runs much longer (so you pay more interest overall), when fees eat the saving, or when the cleared credit cards fill up again. Compare the total amount payable before and after, and consider cutting up or lowering the limits on cards you've cleared.

If your debts are already in arrears or you can't make minimum payments, talk to AKPK about its Debt Management Programme before taking a new loan. Our blog's debt consolidation checklist walks through the decision.

Hire purchase

A way to buy a vehicle or goods by paying instalments, where you own the item only after the final payment.

Hire purchase in Malaysia is governed by the Hire Purchase Act 1967 and is common for cars, motorcycles and some equipment. The item secures the financing, so if you stop paying it can be repossessed.

Hire purchase rates are usually quoted as a flat rate. Convert them with our Flat rate converter before comparing with a reducing-balance rate.

For a vehicle, hire purchase is often cheaper than an unsecured loan. An unsecured loan can suit purchases hire purchase doesn't cover well, such as installation works, software or used items from private sellers.

e-Filing (LHDN)

The online system for filing your income tax return with the Inland Revenue Board (LHDN).

Employees with only employment income usually file Borang BE. People with business income, including sole proprietors, freelancers and many gig workers, file Borang B.

For self-employed applicants, a filed Borang B and the LHDN acknowledgement are useful evidence of income over a full year, alongside bank and platform statements. Filing on time, every year, builds a documented income history.

Some education and medical expenses may qualify for personal tax relief when you file. For YA2025, for example, relief was up to RM 7,000 for your own fees for qualifying courses and up to RM 10,000 for medical expenses such as serious diseases and fertility treatment. Limits and eligible items can change each year, so check the latest list on the LHDN (HASiL) website and keep your receipts.

NSRC (997)

The National Scam Response Centre, which you call on 997 if you've transferred money to a scammer.

If you've paid a fake lender or shared your banking details, call 997 and your bank immediately. The sooner they're told, the better the chance of tracing or freezing the money.

Then make a police report and keep evidence: screenshots, phone numbers, account numbers and receipts.

Fake lenders usually ask for an upfront fee, a deposit or an 'unlock fee' before payout. We never do. Our How to know it's really us page explains how to check you're dealing with us.

PTPTN

Perbadanan Tabung Pendidikan Tinggi Nasional, the government fund that offers education loans for higher education in Malaysia.

PTPTN finances tertiary study at eligible institutions and programmes. Instead of interest it charges a service charge (ujrah) of 1% a year, much lower than a personal loan. Repayment starts 12 months after you finish your studies, and anything you repay before then has no charge.

Apply for PTPTN and scholarships first, and use a personal loan only for what they don't cover, or when the fees fall due before the money arrives.

If you're already repaying PTPTN, include the monthly amount in your existing commitments when you work out your DSR.

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