Conventional Loan Agreement (Malaysia)
CONVENTIONAL LOAN AGREEMENT
Contracts Act 1950 | Financial Services Act 2013 (FSA 2013) | BNM Responsible Lending Guidelines
THIS CONVENTIONAL LOAN AGREEMENT is entered into on [Agreement Date]
BETWEEN:
(1) [Lender Name], of [Lender Address] (hereinafter referred to as the "Lender"); AND
(2) [Borrower Name], of [Borrower Address] (hereinafter referred to as the "Borrower").
1. LOAN FACILITY
1.1 Subject to the terms of this Agreement, the Lender agrees to lend to the Borrower, and the Borrower agrees to borrow from the Lender, the principal sum of [Loan Amount] (the "Loan") for the purpose of [Loan Purpose].
1.2 The Loan shall be disbursed on [Disbursement Date] by credit to the Borrower's designated account or as otherwise directed by the Borrower and agreed by the Lender.
2. INTEREST
2.1 Interest shall accrue on the outstanding principal balance of the Loan at the rate of [Interest Rate] ([Interest Rate Type] rate) per annum, calculated on a daily reducing balance basis.
2.2 For variable rate loans, the interest rate shall be adjusted in line with changes to BNM's published Base Rate. The Lender shall give the Borrower not less than 21 days' notice before any interest rate adjustment, consistent with BNM's Fair Lending Practice guidelines.
3. REPAYMENT
3.1 The Borrower shall repay the Loan together with accrued interest by equal monthly instalments of [Monthly Instalment] each, over a tenure of [Loan Tenure] years. The repayment schedule is set out in Schedule A annexed hereto.
3.2 The Borrower may prepay the Loan in whole or in part subject to giving not less than 30 days' written notice to the Lender and paying the early settlement fee of [Early Settlement Fee], if applicable.
4. SECURITY
4.1 As security for the Borrower's obligations, the Borrower shall provide: [Security Description].
4.2 The Borrower shall execute all security documents within 14 days of this Agreement. For property charges, registration at the relevant State Land Registry under the National Land Code 1965 shall be completed before the first disbursement.
5. DEFAULT AND GOVERNING LAW
5.1 Events of default include: non-payment of any instalment within 30 days of its due date; breach of any covenant; insolvency of the Borrower; and cross-default with other facilities. Upon a continuing event of default, the Lender may accelerate all outstanding principal and interest and enforce any security.
5.2 Borrowers in financial difficulty should contact BNM's Credit Counselling and Debt Management Agency (AKPK) at 1-800-88-2575 before default proceedings commence.
5.3 This Agreement is governed by the laws of Malaysia and the Parties submit to the exclusive jurisdiction of the courts of [Governing Jurisdiction].
Lender (Authorised Signatory)
________________
Signature
Borrower
________________
Signature
What Is a Conventional Loan Agreement (Malaysia)?
A Conventional Loan Agreement in Malaysia sets out the terms on which the lender advances funds and the borrower agrees to repay them.
Conventional loans offered by banks licensed under FSA 2013 — including Malayan Banking Berhad (Maybank), CIMB Bank, Public Bank, and RHB Bank — are subject to BNM's regulatory framework, including the BNM Policy Document on Product Transparency and Disclosure (2012), the Guidelines on Responsible Financing (2012), and the Financial Services Act 2013 licensing requirements. BNM's Base Rate framework, introduced in January 2015, governs variable interest rate loans from licensed banks — variable rate loans are priced at the bank's Base Rate (BR) plus a spread, replacing the previous Base Lending Rate (BLR) system.
The National Credit Rating System under BNM's Credit Reporting Agencies Act 2010 and the Central Credit Reference Information System (CCRIS) maintained by BNM collect credit information on Malaysian borrowers from all licensed financial institutions. A borrower's CCRIS record is a critical factor in loan approval and pricing. CTOS Data Systems Sdn Bhd and RAM Credit Information Sdn Bhd (RAMCI) are licensed credit reporting agencies under the Credit Reporting Agencies Act 2010 that compile broader credit profiles.
Conventional loan agreements in Malaysia must comply with the Consumer Protection Act 1999 (for consumer loans), the Hire-Purchase Act 1967 (for vehicle financing structured as hire-purchase), and the National Land Code 1965 (for mortgage security). Under FSA 2013, Schedule 7, lending activities are regulated activities requiring a BNM licence. The Moneylenders Act 1951 sets maximum interest rate caps for licensed moneylenders (not banks): 12% per annum for secured loans and 18% per annum for unsecured loans under the Moneylenders (Amendment) Act 2011.
For housing loans, BNM's property loan-to-value (LTV) ratio limits apply under the Real Property Gains Tax Act 1976 framework — the maximum LTV for a third or subsequent property loan is 70% of the property value. The National House Buyers Association (HBA) has advocated for stronger consumer protections in standard bank loan agreements, resulting in BNM's Fair Lending Practice guidelines requiring clear disclosure of effective interest rates, total cost of financing, and early settlement charges.
The legal framework governing the Conventional Loan Agreement (Malaysia) in Malaysia draws on several key statutes and regulatory bodies. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Parties executing a Conventional Loan Agreement (Malaysia) in Malaysia should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Financial Services Act 2013 (Act 758) sets the foundational requirements.
When Do You Need a Conventional Loan Agreement (Malaysia)?
A Conventional Loan Agreement in Malaysia is needed whenever a borrower obtains a sum of money from a licensed financial institution or lender and the parties agree to document the borrowing obligation, repayment terms, and interest on a conventional (non-Islamic) basis.
A Conventional Loan Agreement is required when an individual obtains a personal loan from a licensed bank such as Maybank, CIMB Bank, or Public Bank for purposes such as home renovation, education, medical expenses, or debt consolidation. The loan agreement documents the principal amount, interest rate (fixed or variable linked to BNM's Base Rate), monthly repayment amounts, and tenure.
A Conventional Loan Agreement is needed when a company registered under the Companies Act 2016 obtains a term loan from a licensed commercial bank for capital expenditure, business expansion, or working capital. The agreement includes financial covenants, cross-default provisions, and security requirements typical of corporate lending.
A Conventional Loan Agreement is required when a borrower takes a housing loan from a licensed bank to purchase residential property. The loan agreement is supplemented by a Deed of Assignment or Memorandum of Charge under the National Land Code 1965, creating a mortgage over the property as security for the bank's lending.
A Conventional Loan Agreement is needed when a small and medium enterprise (SME) in Malaysia obtains financing under a BNM-administered guarantee scheme such as the Syarikat Jaminan Pembiayaan Perniagaan (SJPP) or Credit Guarantee Corporation Malaysia Berhad (CGC) programme. The government-backed guarantee requires a documented loan agreement between the bank and the SME.
A Conventional Loan Agreement is required when parties enter into a private lending arrangement — for example, a shareholder loan from an individual to their company — and wish to create a legally enforceable debt obligation with clear interest, repayment terms, and priority ranking in the event of the company's winding-up under the Companies Act 2016.
What to Include in Your Conventional Loan Agreement (Malaysia)
A valid Conventional Loan Agreement in Malaysia must contain the following essential elements to be enforceable under the Contracts Act 1950 and FSA 2013.
Identification of Parties: The agreement must state the full legal names, SSM registration numbers (for companies), NRIC numbers (for individuals), and registered addresses of the lender and borrower. For licensed bank lenders, the FSA 2013 licence number should be referenced. For licensed moneylenders, the Moneylenders Act 1951 licence number must be stated under Section 9A of that Act.
Loan Amount and Disbursement: The principal loan amount in Malaysian Ringgit (RM) must be stated clearly, together with the disbursement method (single draw, phased drawdown, or revolving facility), the disbursement date(s), and any conditions precedent to disbursement (e.g., receipt of security documents, satisfactory credit assessment).
Interest Rate: The interest rate — whether fixed or variable — must be stated with precision. For variable rate loans, the reference rate (BNM Base Rate or Cost of Funds) and the spread above that reference rate must be specified. For consumer loans, the effective interest rate (EIR) must be disclosed under BNM's Product Transparency and Disclosure guidelines. The Moneylenders Act 1951 caps apply to licensed moneylenders.
Repayment Schedule: The monthly repayment amount, repayment commencement date, total number of instalments, and final repayment date must be set out. For reducing balance loans, the principal and interest components of each instalment should be shown. For bullet loans, the repayment date for the full principal must be stated.
Security: The agreement must describe all security provided for the loan — property charges under the National Land Code 1965, debentures under the Companies Act 2016, personal guarantees, fixed deposits, or life insurance assignments. The security documentation must be executed and registered in parallel with the loan agreement.
Events of Default: The agreement must specify events of default — including non-payment, breach of covenants, insolvency, cross-default with other lenders, and material adverse change — and the lender's rights upon default, including acceleration of the full outstanding principal and interest, enforcement of security, and commencement of legal proceedings in the High Court of Malaya.
Early Settlement: The right of the borrower to prepay the loan, any prepayment fee or penalty, and the process for calculating the settlement amount must be specified. BNM's Guidelines on Early Settlement require licensed banks to use the Rule of 78 or actuarial method for consumer loans and to disclose settlement charges in advance.
Governing Law and Dispute Resolution: The agreement must specify that it is governed by the laws of Malaysia and that disputes are subject to the jurisdiction of the Malaysian courts or arbitration under the Arbitration Act 2005 before the Asian International Arbitration Centre (AIAC).
Additional compliance elements for a Conventional Loan Agreement (Malaysia) used in Malaysia include: Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Forms-legal.com provides this template as a starting point for Malaysia-compliant documentation.
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Forms Legal. (2026). Conventional Loan Agreement (Malaysia) (Malaysia) [Legal document template]. Forms Legal. https://forms-legal.com/malaysia/financial/loans/conventional-loan-agreement-malaysia
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author = {{Forms Legal}},
title = {Conventional Loan Agreement (Malaysia) (Malaysia)},
year = {2026},
howpublished = {\url{https://forms-legal.com/malaysia/financial/loans/conventional-loan-agreement-malaysia}},
note = {Free legal document template. Based on Financial Services Act 2013 (Act 758)}
}Frequently Asked Questions
The maximum interest rate for a conventional loan in Malaysia depends on the type of lender and the borrower category. Licensed banks under the Financial Services Act 2013 are not subject to a statutory interest rate cap — their rates are market-determined, subject to BNM's Base Rate (BR) framework and fair lending guidelines. For licensed moneylenders under the Moneylenders Act 1951 (as amended in 2011), the maximum interest rate is 12% per annum for secured loans and 18% per annum for unsecured loans. For hire-purchase financing under the Hire-Purchase Act 1967, BNM sets maximum flat interest rates periodically — currently 2.5% per annum for new vehicle financing and 3.5% for used vehicles. Credit card interest rates charged by licensed banks are capped at 18% per annum under BNM's Credit Card Guidelines. Pawnbrokers under the Pawnbrokers Act 1972 are subject to maximum monthly charges set by the Ministry of Urban Wellbeing, Housing and Local Government.
A conventional loan agreement in Malaysia is subject to stamp duty under the Stamp Act 1949 (revised 2016). Under Item 27(b) of the First Schedule, a loan agreement is stamped at 0.5% of the loan principal, subject to a minimum of RM10. This rate applies to all loan amounts without an upper cap. The stamp duty must be paid to the Inland Revenue Board of Malaysia (LHDN) within 30 days of execution if the agreement is signed in Malaysia, or within 30 days of receipt in Malaysia if signed abroad. An unstamped loan agreement is not void but is inadmissible as evidence in any legal proceedings unless it is first adjudicated and the outstanding duty plus penalty is paid under Section 47 of the Stamp Act 1949. For housing loans, the Memorandum of Charge under the National Land Code 1965 is also subject to stamp duty at 0.5% of the secured amount, payable separately from the loan agreement stamp duty.
If a borrower defaults on a conventional loan in Malaysia, the licensed bank or lender may take several steps. The lender typically issues a formal demand letter under Section 91 of the National Land Code 1965 (for secured housing loans) or a demand under the loan agreement terms. If the borrower fails to remedy the default within the specified period (often 30 days), the lender may accelerate the full outstanding principal and interest and commence legal proceedings in the High Court of Malaya under Order 83 of the Rules of Court 2012 for a summary judgment. For housing loans, the bank may apply for an order for sale of the charged property. For unsecured loans, the lender may obtain a judgment and enforce it through attachment of the borrower's salary (under Order 37) or writ of seizure and sale of assets. Borrowers facing financial difficulty may contact BNM's Credit Counselling and Debt Management Agency (AKPK) for a debt repayment scheme before the lender commences action.
A company in Malaysia may give a loan to another company without a BNM licence, provided the lending company is not in the business of moneylending or the provision of credit facilities, which would require licensing under the Financial Services Act 2013 or the Moneylenders Act 1951. Intercompany loans — including loans between holding and subsidiary companies or between related companies within a corporate group — are common and do not require a BNM lending licence if they are not made as part of a commercial lending business. However, Companies Act 2016, Section 224 restricts loans by companies to their directors and persons connected with directors without shareholder approval. Intercompany loans should be documented in a formal loan agreement, stating interest rate (arm's length pricing is required for tax purposes under the Income Tax Act 1967 transfer pricing rules), repayment terms, and security. BNM's Exchange Control Notices apply to cross-border intercompany loans involving foreign currencies.
A conventional loan in Malaysia involves the lending of money at interest — the lender provides a principal sum and the borrower repays principal plus interest. Islamic financing products, regulated under the Islamic Financial Services Act 2013, are structured to avoid riba (interest) by using Shariah-compliant contracts such as BBA (deferred sale), Murabahah (cost-plus sale), Ijarah (leasing), or Musharakah (partnership). In economic terms, a conventional loan's interest and an Islamic financing product's profit margin may be comparable in amount, but the legal structure differs fundamentally: Islamic financing involves asset transactions or partnership structures rather than a simple debtor-creditor relationship. Licensed Malaysian banks typically operate both conventional and Islamic banking windows — Maybank and Maybank Islamic, CIMB Bank and CIMB Islamic — under separate licences issued by BNM under FSA 2013 and IFSA 2013 respectively. Both conventional and Islamic deposits are protected by PIDM up to RM250,000 per depositor per institution.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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