Bank loan or licensed moneylender: an honest comparison

Most writing on this subject is sales material from one side or the other. We are one of the sides, so here is the part that is usually left out: for a borrower with a clean record, steady documented income and room in their commitments, a bank personal loan is the better deal, and you should go there. The rest of this page is about what to do when that is not your situation.

Two different regulators

The distinction people miss is not about size or respectability. It is about which law each operates under.

A bank is licensed under the Financial Services Act 2013 and supervised by Bank Negara Malaysia. Its personal loan pricing, lending policies and affordability rules come from that framework.

A licensed moneylender is licensed under the Moneylenders Act 1951 and supervised by the Ministry of Housing and Local Government (KPKT). The Act is old, specific and surprisingly protective. It sets a ceiling on interest, dictates the form of the agreement, requires the agreement to be attested, and makes several practices criminal offences rather than merely prohibited.

Neither is the "unofficial" version of the other. They are two licensed routes with different rules. What is unlicensed is the third thing, the ah long, and that is not a lender at all.

Source: Kementerian Perumahan dan Kerajaan Tempatan (KPKT) · KPKT

How they compare

Two of those rows deserve more than a line.

On cost

A licensed moneylender costs more than a bank, and the reason is not mysterious. We lend to people banks decline, which means a higher share of loans go wrong, and that has to be priced in.

What the Act does is put a hard ceiling on it. Section 17A caps interest at 18% a year for an unsecured loan and 12% for a secured one. Section 23 goes further and prohibits charging you anything beyond stamp duty, fees payable by law, and legal costs. There is no processing fee, no arrangement fee, no insurance you must buy. If a licensed lender tries to add one, it is acting outside the Act.

Section 17 also bars compound interest. If you fall behind, what may be charged is simple interest of 8% a year on the overdue amount only, counted daily, never on the whole loan.

Our own rate is a flat 4.88% a year, well under the ceiling. See rates and fees for the full picture, including why the flat rate and the effective rate are different numbers.

On who gets accepted

This is the real reason most people end up comparing the two. Bank policies are built around evidence: a payslip, an EPF record, confirmed employment, a debt service ratio inside a set limit. They work well for people whose working life fits that shape.

A great many Malaysians earn real money that does not fit it. A hawker whose takings are cash. A Grab driver whose income is in an app. Someone on a six-month contract. A pensioner. A small business owner who pays themselves irregularly. None of these is a bad borrower, and all of them are hard for a bank to process.

We can look at bank statements instead of payslips, and we are not bound by Bank Negara's DSR policies. We still assess affordability, because a loan you cannot repay helps nobody, but the test is what you can actually show.

On the agreement

This is where the Act is strongest, and it is worth knowing before you sign anything.

Your agreement must be in the form prescribed by the Act, with every blank filled in before you sign. Section 27B makes it an offence to have you sign a document with blanks in it. Section 27 requires the agreement to be attested, by a Commissioner for Oaths or another authorised attestor, who explains the terms to you. An unattested agreement is void. Section 16 entitles you to a signed, stamped copy before any money changes hands.

Section 27A prohibits licensed moneylenders from using agents or canvassers. Only our own staff will ever contact you, which is why you can check any contact against our staff list.

Read the agreement explained clause by clause before your signing appointment, not after.

Which one you should be applying to

Go to a bank first if you have payslips and an EPF record, your employment is confirmed, your commitments leave room, and your repayment record over the last six months is clean. You will pay less.

A licensed moneylender makes sense if a bank has already declined you and you know why, your income is real but hard to document, your employment is recent or on contract, or you need a decision in a day rather than a fortnight.

Neither, yet, if you have not worked out what the repayments do to your monthly budget. Do that first. How much you can afford is the place to start, and the answer is sometimes "borrow less" or "not now".

Checking a licensed lender is actually licensed

Anyone can claim a licence in a WhatsApp message. Two ways to check, both free:

• KPKT publishes the official list of licensed moneylenders on kpkt.gov.my. Compare both the company name and the licence number, not just the name.
• KPKT also runs an official mobile app, i-KrediKom, on Google Play and the App Store, for looking up licensed companies and making complaints. It covers Peninsular Malaysia.

Our licence number is on our licence page and at the foot of every page on this site. If the number you were given does not match the list, you are not talking to us.

Common questions

Is a licensed moneylender legal? Yes, under the Moneylenders Act 1951, licensed and supervised by KPKT. The licence is issued for a fixed term and must be renewed.

Will borrowing from one hurt my credit record? It is a credit facility like any other and may be recorded. Paying on time is what matters.

Can I be charged a processing fee? No. Section 23 allows only stamp duty, fees payable by law and legal costs. Nothing is payable before your loan is disbursed.

Which is faster? A licensed moneylender, usually by a wide margin. Speed should not be the only reason you choose, but when a hospital bill is due this week it is the reason that matters.

Next steps

If you have been declined, start with why loans get rejected. If you are comparing costs, flat rate versus effective rate explains why two advertised numbers can describe the same loan. When you are ready, send us the basics and we will tell you honestly whether we are the right answer.