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Credit & Debt

6 Common Loan Myths in Malaysia Debunked

CIMB ❘ 19 Jun 2026

5 min(s) read

The moment you mention the word “loan,” everyone tends to have a certain reaction: Your parents tell you to avoid borrowing, some internet forums suggest that a single credit application will damage your financial standing, and your friends may think a personal loan is simply extra cash for a holiday or a wedding.

With so much noise out there, it’s easy to get confused about how loans actually work, especially when it comes to loan applications and approval requirements in Malaysia.

True financial wellness comes from replacing assumptions with facts. Loans are not inherently good or bad; they are financial tools. When used appropriately, they can support investments, manage cash flow, and help you achieve your long-term financial goals.

If you are considering applying for a loan in Malaysia, understanding these common misconceptions can help you make better financial decisions.

Let’s break down six common loan myths.

Myth 1: "All Debt is Bad Debt (and You Should Avoid It Completely)"

🌚 The Rumour: If you owe money, you are financially irresponsible. You should buy everything with cash and never borrow a single ringgit.

🌝 The Reality Check: There is an important distinction between good debt and bad debt.

Bad Debt ❌: Borrowing money for discretionary spending on items that typically do not hold value (like funding an expensive holiday on a credit card or buying a luxury designer bag you can’t afford).
Good Debt ✅: Borrowing with the intention of building long-term value or improving earning potential, such as taking out a mortgage for a property that appreciates in value, or getting an education loan to jumpstart your career.

Using credit strategically can support long-term financial goals when managed responsibly.

Myth 2: "Just Applying for a Loan Will Ruin Your Credit Score"

🌚 The Rumour: If a bank pulls your credit report, your financial reputation will immediately be affected.

🌝 The Reality Check: When you apply for a loan or a credit card, the bank performs a credit check (often referred to as a "hard inquiry") on your Central Credit Reference Information System (CCRIS) report. This may result in a small and temporary impact, but it does not significantly damage your credit profile.

👉🏻 In fact, you need a loan or credit card to build a credit profile in the first place! If you have zero history of borrowing, banks have no idea if you're a responsible paymaster.

👉🏻 The trick is to avoid spamming five different banks with loan applications in the same week (which may signal higher credit risk). Apply strategically, pay your bills on time, and your credit score may improve over time.

Myth 3: "You Must Be 100% Debt-Free Before You Can Start Investing (or Apply for New Loans)"

🌚 The Rumour: You should clear all debts before you even think about investing or taking on any new loan.

🌝 The Reality Check: Being completely debt-free is not always a prerequisite for starting your financial journey or applying for new credit.

👉🏻 In practice, banks assess your overall financial profile, including income, existing commitments, and repayment behaviour — rather than expecting zero debt.

👉🏻 In some cases, this may come down to comparing costs and potential returns. If you have a low-interest liability (like an undergraduate PTPTN student loan compounding at a flat 1% p.a.), but you have the opportunity to invest in a low-to-medium risk fund based on historical returns of 5% to 6% p.a. (which may vary), it may make financial sense to manage both concurrently, depending on your financial situation and risk tolerance.

👉🏻 The Golden Rule: Always prioritise repaying higher-cost debt (such as credit card balances), while managing lower-cost obligations alongside long-term financial goals.

👉🏻 Adopting a “debt-free first” mindset may lead individuals to avoid borrowing entirely, even in situations where certain types of loans could support long-term financial goals, such as education or asset-building.

Myth 4: "CCRIS is a Blacklist That Bans You From Getting a Loan"

🌚 The Rumour: Being listed in Bank Negara Malaysia’s (BNM) CCRIS system means you are blacklisted.

🌝 The Reality Check: CCRIS is not a blacklist. It is a record of your financial behaviour over the last 12 months.

👉🏻 Most individuals in Malaysia who have a credit card, a PTPTN loan, a car loan, or a mortgage are included in the CCRIS system. It tracks whether you paid on time, missed a month, or fully settled your balances. BNM just provides the data; they do not tell the banks to reject you.

👉🏻 Banks use this information alongside other factors, to assess repayment behaviour. If your report shows consistent, on-time "0"s (meaning zero missed payments), it generally shows that you have a stronger credit profile.

Myth 5: "Closing Old Credit Accounts Instantly Improves Your Chances of Getting a Loan"

🌚 The Rumour: Got an old credit card you barely use? Cancel it to clean up your financial profile and improve your chances of loan approval.

🌝 The Reality Check: Closing old credit accounts does not necessarily improve your chances of getting a loan. In some cases, it may have the opposite effect.

👉🏻 When assessing a loan application, banks consider your overall credit profile, including factors such as your credit history and Credit Utilisation Ratio³ (how much credit you use compared to your total credit limit).

👉🏻 Long-standing credit accounts can demonstrate a track record of responsible repayment behaviour. Closing them may shorten your credit history and reduce your total available credit limit, which could affect how your profile is assessed.

👉🏻 Since your credit profile is one of the factors used in loan approval decisions, maintaining well-managed credit accounts over time may support a more stable borrowing profile.

Myth 6: "Settling a Personal Loan Early Will Save You a Fortune in Interest"

🌚 The Rumour: Paying off your loan early will always result in significant interest savings.

🌝 The Reality Check: The actual savings depend on how the loan is structured.

👉🏻 In Malaysia, some older or conventional personal loans are calculated using a Flat Interest Rate based on the "Rule of 78." Under this system, the bank structures your loan so that you pay off a larger portion of the total interest during the first half of your loan tenure.

👉🏻 This means that in later years of the loan, early settlement may result in limited savings, and might even trigger additional fees, depending on the terms.

👉🏻 Note: Keep an eye on BNM guidelines. Starting in 2027, BNM has indicated a transition towards all new personal financing using the reducing balance method (where interest is only charged on what you currently owe), which will make early settlement more beneficial. But for now, always read your product disclosure sheet first!

Takeaway

Loans are not inherently a financial risk. Their impact depends on how they are used and managed.

By understanding how credit works, you can make more informed decisions, avoid common misconceptions, and use borrowing as part of a well-planned financial strategy.

If you are considering a loan or financing option in Malaysia, reviewing your financial position and understanding the product terms can help you choose an option that aligns with your goals.

Check out our Personal Loan Calculator to see how repayments might look for your budget.

References:

This article is for informational purposes only and CIMB does not make any representation and warranty as to the accuracy, completeness and fairness of any information contained in this article. As this article is general in nature, it is not intended to address the circumstances of any particular individual or entity. You are advised to consult a financial advisor or investment professional before making any decisions based on the information contained in this article. CIMB assumes no liability for any consequences arising from your reliance on the information presented here.

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