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Consumer Guide on Borrowing
02/03/2012
 

At some stage in life, one has to borrow money from financial institutions. How do you prepare yourself for this? Let us explain how you can decide what financing product is right for you. 

What to bear in mind?

  • When you borrow remember that you have to pay it back.
  • Borrowing money costs money. So, do not borrow more than you need or can afford.
  • You should work out how much you can afford to repay every month based on your income, expenses and other debt commitments. Otherwise, you may have difficulty in repaying in the future.
  • In assessing whether you can afford the financing, you should consider future increases in the financing rate or any changes that might affect your income or expenses in the future.

 

Shop around for the best deal

  • Take the time to compare the financing rate, lock-in-period and penalty, product features, fees and charges.
  • A small difference in the financing rate can make a big difference to what you have to repay.
  • To help you compare products, financial institutions should give you a Product Disclosure Sheet containing key information on the financing product.
  • You can also refer to the comparative tables on financing products available on the bankinginfo website at www.bankinginfo.com.my to help you decide on the right product that meets your needs and requirements.   
  • Read and understand the key terms, relevant charges and your obligation as a borrower.
  • Ask for an explanation on any terms that are unclear to you.
  • Know what you are getting into before signing up for a financing product.

 

What information I need to provide with an application?

  • Latest 3 months salary slip and evidence of other income. 
  • Latest EPF statement or income tax return form.
  • If you are self-employed, the latest 6 months bank statement and financial statement. 
  • Your existing debt commitments (e.g. loan from cooperatives, instalment plan with merchants, etc).

 

What is my responsibility as a borrower?

  • Provide adequate and accurate information in the application form. Disclosing inaccurate information may affect your risk profile causing the financial institution to impose a higher financing rate. The financial institution may even reject your application if you provide inaccurate information.
  • Read the financing documents before you sign them.
  • Repay before or by the due date to avoid being charged a late payment penalty. 
  • Try to pay down your financing if you have excess money to save on interest charges. Check with your financial institution if any fees apply for early repayment.
  • Make payments to clear your instalments in arrears first.

 

What are my rights?

  • Your financial institution must give you at least 21 days notice before changing any terms in your financing agreement (including fees and charges).
  • Your financial institution must provide you a statement at least once a year, detailing the payments made and amounts charged to your account.

 

What if the financing rate increases?

  • If your financing is based on a variable rate, the financing rate may change according to changes in the reference rate or your risk profile.
  • When the financing rate increases, your total repayment and total financing costs will be higher at the end of the tenure.
  • Assuming you borrow RM250,000 for 20 years with a financing rate of 6%, your monthly repayment is RM1,791. If the financing rate rises by 1% you have to pay an additional RM147 per month. If the financing rate increases by 2% you have to pay an additional RM300 per month.

 

 

 

Today (rate = 6% )

If rate goes up 1%

If rate goes up 2%

Monthly repayment

RM1,791

RM1,938

RM2,091

Total interest cost at the end of 20 years

RM159,859

RM215,179

RM251, 864

Total repayment amount at the end of 20 years

RM429,859

RM465,179

RM501, 864 

    

What if I fail to meet my repayment?

If you have trouble meeting your repayments, contact your financial institution early to discuss repayment options. It is important to act quickly, if not, your financial institution may:

  • Charge you a late payment penalty of 1% per annum on the amount in arrears causing your total outstanding debt to increase.
  • Increase the financing rate. The interest on your loan will build up so you end up paying more.
  • Set-off any credit balance in your savings account against any outstanding balance in your financing account.
  • Take legal action against you. Your financial institution may repossess your car (for car financing) or foreclose your property (for home financing). You have to pay for all the costs related to repossession or foreclosure. If there is a shortfall after your car or property is sold, you are still responsible to pay the balance amount owing to the financial institution. 

You may also seek the assistance of Agensi Kaunseling dan Pengurusan Kredit (AKPK). AKPK is an agency set up by Bank Negara Malaysia to provide free services on financial management, credit counselling, financial education and debt restructuring for individuals. You can contact AKPK at: 

Level 8, Maju Junction Mall

1001 Jalan Sultan Ismail

50250 Kuala Lumpur

Tel         : 1-800-88-2575

Email     : enquiry@akpk.org.my

Website : www.akpk.org.my

 

Where do I go if I have a complaint?

  • If you have any query or problem regarding your financing contract, contact your institution’s customer service or complaint unit first.
  • You may also contact Bank Negara Malaysia LINK or TELELINK at

Block D, Bank Negara Malaysia

Jalan Dato’ Onn

50480 Kuala Lumpur.

Tel       : 1-300-88-5465

Email   : bnmtelelink@bnm.gov.my

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