How to Secure a Loan Even With High Credit Card Debt in Malaysia
If you're struggling with high credit card debt in Malaysia but need to secure a loan, you're not alone. Many people especially youth aged 30 and below face high credit card debt due to poor financial decisions. It is easy to feel overwhelmed when your credit card balances are piling up. But the good news is that it is possible to secure a loan even with high credit card debt. In this blog, we'll explain how to improve your chances of securing a loan.
Understanding High Credit Card Debt in Malaysia
Credit card debt can quickly spiral out of control, especially when high interest rates and late payment fees are factored in. In Malaysia, interest rates for credit cards can range from 15% to 18% per annum, and this can add up quickly if balances aren't paid off in full each month. Having a high credit card balance can negatively affect your credit score, which is a factor financial institutions take seriously when considering giving out loans.
However, it’s important to remember that having high credit card debt does not necessarily mean you cannot qualify for a loan, it just basically lowers the chance of you getting a loan approved. Yes indeed credit score is a crucial aspect lenders emphasize, but they also look at several factors to determine whether to approve your loan application.
Steps and Tips on How to Get a Loan
Step 1: Check Your Credit Score
In Malaysia, credit scores are evaluated by CTOS (Credit Tip-Off Service) and CCRIS (Central Credit Reference Information System). These agencies compile your credit history and calculate a score based on your financial behavior, including your credit card usage and repayment history.
Before applying for a loan, it's essential to check your credit score. You can get a free copy of your report from CTOS or CCRIS. If your score is lower than 670, consider taking steps to improve it before applying for a loan. Some actions like paying down existing debt, reducing your credit card balance, and making sure all your payments are timely can help improve your score over time. Understandable that it is easier said than done if you have a bunch of commitments and are financially tight, but these things play a crucial role in having a higher chance to secure a loan.
Step 2: Consider Loan Types that Accept High Credit Card Debt
Not all loans are created equal. While traditional bank loans might be harder to secure if you have high credit card debt, there are alternative loan options available in Malaysia that may be more lenient when it comes to approving applications from people with existing debt.
Here are some loan options to consider:
Personal Loans: Some banks and financial institutions in Malaysia offer personal loans with flexible eligibility requirements. These loans are typically unsecured, meaning you don’t need to put up assets like property as collateral. While a high credit card debt may impact your eligibility, personal loans from certain lenders may still be accessible if you have a stable income.
Debt Consolidation Loans: If your credit card debt is your primary concern, a debt consolidation loan might be the solution. This type of loan combines multiple high-interest debts into a single loan with a lower interest rate, making it easier to manage your finances. Some banks offer debt consolidation loans specifically for individuals with high credit card debt, provided they meet certain criteria such as having a steady income and a minimum level of creditworthiness.
Home Equity Loans: If you own property in Malaysia, you may qualify for a home equity loan. This type of loan uses your property as collateral and typically offers lower interest rates compared to unsecured loans. While this option involves higher risk since you're securing the loan against your home, it could be a viable choice if you have a significant amount of home equity built up.
Microloans or Peer-to-Peer (P2P) Lending: In recent years, P2P lending platforms and microloans have gained popularity in Malaysia. These are alternative lending options that may be more flexible and willing to lend money to borrowers with less-than-perfect credit histories. Be sure to carefully evaluate the terms and fees before committing to any loan. Take note to never go to unregistered lenders or loan sharks as they may be risky and you might endanger your loved ones.
Step 3: Strengthen Your Financial Profile
Lenders in Malaysia consider more than just your credit card debt when evaluating your loan application as said earlier. A strong financial profile can make a significant difference in securing a loan despite high credit card debt. Here are a few tips for improving your financial standing:
Increase Your Income: Lenders want to know that you have the ability to repay the loan. If you have a high credit card debt but can show that your income has increased (through a new job, side hustle, or other means), it will improve your chances of securing a loan. Be prepared to show proof of income, such as pay slips or bank statements.
Reduce Your Credit Card Debt: While this can take time, reducing your credit card debt should be a priority. Not only will it improve your debt-to-income ratio, but it will also lower your credit utilization rate, which is an important factor in calculating your credit score.
Provide Collateral: If you're applying for a secured loan, offering collateral (such as a car or property) can help increase your chances of approval, even with high credit card debt. This reduces the risk for lenders and gives them more confidence in lending you money.
Get a Co-Signer: If you have a trusted family member or friend with a strong credit history, consider asking them to co-sign your loan. A co-signer adds an extra layer of security for the lender, making them more likely to approve your application. Keep in mind that your co-signer will be responsible for repaying the loan if you fail to do so.
Step 4: Shop Around for the Best Loan Offers
Compare interest rates, fees, and repayment terms across various banks and financial institutions in Malaysia. Some lenders may be more flexible in approving loans for those with high credit card debt, so it's important to explore multiple options before making a decision. Consider also contacting a private loan agency or a business loan consultant in Malaysia for best loan offers.
Final Thoughts on How to Get a Loan With High Credit Card Debt
Securing a loan in Malaysia with high credit card debt is challenging, but it’s not impossible. By understanding your credit score, considering different loan types, improving your financial profile, and shopping around for the best deal, you can increase your chances of approval.
Remember, the key is to approach your loan application strategically. Don’t be discouraged by high credit card debt—take the necessary steps to manage it, improve your finances, and explore various loan options. By doing so, you’ll be in a stronger position to secure the loan you need.
If you're unsure where to start, consider seeking advice from 3X Advisor the best loan consultant in Malaysia financial advisor or debt consolidation professional who can guide you through the process. With patience and careful planning, securing a loan even with high credit card debt in Malaysia is possible.
Disclaimer: This blog is for informational purposes only. Always consult a licensed financial advisor before making any decisions related to loans or debt management.
