Licensed Money Lenders vs. Banks

Different people have different ideas of getting a loan. While someone might consider it okay to get a loan for all things big and small, others might be strictly against the borrowing of any sort. However, certain situations in life leave no option but to take a loan. You might need the extra monetary help to ease business cash flow or to pay for emergency bills.

In Malaysia, two of the most common options to take out a loan are traditional banks and licensed money lenders. So, who should you borrow from? Let’s us take a deep dive into both of these money lending institutions.

But First, Let’s Dispel The Money lender = ‘Ah Long” Myth

Licensed money lenders in Malaysia are under the purview of Ministry of Housing and Local Government, and governed through Money Lenders Act 1951 and Money Lenders Act (Amended) 2003. They are restricted by the amount of they can lend, interest rate and the fees they can charge.

Unlicensed money lenders or “Ah Long” on the other hand, are known for their steep interest rates and harassment tactics. And how to find out if your moneylender is licensed or not? You can find a full list of licensed moneylenders on the Ministry of Housing and Local Government’s website and crosscheck their SSM registration number before you take a loan.

Now, Let’s Come Back To What’s The Difference Between A Bank and A Licensed Money Lender

Both of these lenders can help you get the funds you need to buy your home, as long as your credit, income, and debts meet their qualifications. But they each come with a unique set of pros and cons.

1. How Much You Can Borrow

Banks generally provides higher borrowing amounts compare to regular money lenders as they have more cash reserves from other monetary services such as fixed deposits, savings accounts and etc.

The maximum amount of loans offered by moneylenders varies from lender to lender but their limited capital means the borrowing amount is not as large as what a bank could offer.

2. How Fast You Can Obtain The Funds

Money lenders are predominantly smaller companies with more flexible rules. Unlike banks who have many bureaucratic layers and intensive guidelines to follow; money lenders do their best to address their potential borrowers’ needs the fastest way possible.

As long as the borrowers provide all the required documents, then there is a huge possibility of being approved of a loan without a long waiting period.

3. What About The Credit Score Check

Banks require high levels of creditworthiness to be eligible for loans. Thus, they will check your credit score and history thoroughly based on the credit report from Central Credit Reference Information System (​CCRIS). If you have a poor credit history, you’ll be considered as a high-risk borrower, and it’s almost impossible for you to get a loan from the bank.

On the other hand, licensed money lenders are more forgiving and flexible when it comes to performing credit score check. They refer to the credit report from Malaysia credit rating agency CTOS and are more open to providing loans for borrowers who are unable to meet the bank’s strict criteria.

So, Which One Is Right For Me?

The answer is each offers something the others don’t, so your choice could depend on your priorities.

If you’re in need of cash urgently, or if you have less-than-perfect credit score, go with licensed money lenders. They are more flexible and you can obtain approval faster than banks.

On the contrary, a bank loan could be a better option for you. If you want to borrow a larger sum and wish to lower the overall cost of your debt. Just make sure you have a good credit score to decrease the chances of rejection.

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