Consumer Guide on Borrowing

The household borrowing has been on a rising trend over the last 10 years, increasing at an annual rate of 12% over the recent five years. Experiences of other countries have shown that excessive borrowing and rapid build-up in household indebtedness had undesirable impact on the economy. Bank Negara Malaysia (BNM) has put in place a comprehensive range of pre-emptive measures which includes the issuance of the Guideline on Responsible Financing to ensure that household sector does not become a source of vulnerability to the financial system and economy.

Base Lending Rates

Base Lending Rate (BLR) is a minimum interest rate calculated by financial institutions based on a formula which takes into account the institutions’ cost of funds and other administrative cost. The rate is determined by each bank based on how much it costs to borrow the money to be lent to borrowers. The cost to borrow money is determined by the Overnight Policy Rate (OPR) set by Bank Negara Malaysia which decides whether to move the OPR up or down depending on the current state of the global economy. The rate will generally rise when the money market is on an uptrend and falls when the opposite happens.

Example of BLR calculation for home loan:

The current BLR rate is 6.85% and the bank loan package is 6.85% – 2.65% = 4.2% p.a. with loan tenure can range anytime up to maximum 35 years.

House price RM400,000
Down payment RM40,000
Interest rate BLR 6.85% – 2.65% = 4.2% p.a.
Loan financing 90%
Loan tenure 35 years

Minimum monthly repayment @ RM1,637

Source: Bank Negara Malaysia