“Cash Back” scheme, first popular by credit card issuers, then spread to hypermarkets, and now it seems to catch on with personal loan too.
Claimed to be “the only personal loan that gives you 20% cash back each month“, Hong Leong bank latest offering is eye catching which certainly deserves some eye-opening detail too.
The “cash back” offer
First, the ‘cash back’ is applicable not throught out the entire loan period, but is a feature that kick-in after the first 6 months of the loan and ends 6 months before the loan ended. In short, no matter what is the loan period, there is a total period of 12 months that the borrower paying the standard interest rate per annum, which is 12%.
Secondly, to enjoy the ‘cash back’, the borrower has to satisfy 2 very important conditions - prompt payment for the first 6 months, and consistent prompt payment through out the entire period (100%, not a single late payment). Failing to meet these 2 conditions means no cash back or the cash back offer will be cancelled.
So with those ‘cash back’, what is the interest rate after all? The quoted flat interest rate is 12% per annum. For the 1st year and the last year, the borrower is paying 6 months at 12% per annum and then 9.6% per annum for the remaining 6 months. Therefore the interest rate for the first and last year is 10.8% per annum. As for the rest of the period, it is 9.6% per annum.
To be sure, 9.6% is probably not the lowest, at best it is on-par with market average. However, the final interest rate is much higher as the borrower will not get 100% of the loan approved. For loan below RM100,000, there is a processing fee of RM100, and stamp duty of 0.5% of the loan amount. These processing fees are directly deducted from the loan amount.
Conclusion
This is a very smart scheme as it sounds very attractive and best at all, the bank can selectively reward (in the form of limited cash back) those good customers who pay promptly.
How to increase your loan approval chances?
It is very simple, bank looks at your repayment record. To be successful, make sure you have at least 12 months prompt payment record on all of your existing loans - car loan, housing loan, credit card payment, and may be your higher education loan too! Top on the list is credir card payment record. Therefore, it is very hard to get a personal loan to cover your credit card payment if you already fall behind the payment schedule.
