Non-Performing Loans & What If You Can’t Pay Your Loans
Rising Impaired Loans
According to a report by The Edge Market, Malaysia’s impaired loans were creeping up every month in the fourth quarter of 2020 after the blanket loan moratorium ended on Sept 30.
The amount of non-performing loans (NPLs) reached a nine-year high of RM28.7 billion at end-2020, according to the latest data from Bank Negara Malaysia (BNM).
A closer look into the breakdown of total impaired loans revealed that both the household sector and sector of wholesale & retail trade, and restaurants & hotels saw noticeable upward trends from October to December.
Even as the blanket moratorium ended and most borrowers resumed loan repayments, a target repayment assistance was offered to selected groups of people until June 30, 2021. Nevertheless, the moratorium in general delayed the recognition of impairments by banks and therefore the high impaired loans reported subsequently are possibly due to the lag. Bank Negara (BNM) has announced that borrowers can request moratorium extensions to their existing bank loans which will not affect their credit report.
What If You Are Not Able to Service Your Loans?
Under normal circumstances, if you stop paying your loans, you will be penalised. Missing your monthly repayment is a big deal but its not the end of the world. Failing to pay your loan will have negative financial consequences but what’s more important, is that you take immediate steps to communicate with the financial institution to set things right.
What happens next?
You have to Pay More
Be prepared for late payment charges. However if a borrower fails to regularise the arrears by the end of the 60 days, the bank reserves the right to revise the interest rate accordingly. The power of compounding interest rates could really turn things awful.
Bad Credit Rating
Those arrears you had to pay will be reflected in your credit report, and there is no quick fix to this. Bad credit rating means most of the financial institutions will reject your loan/ finance application.
If you have been missing deadlines, your best bet is to simply make prompt payments. Your credit score won’t be affected immediately, as the report reflects your activities and transactions for the past 12 months. But pay on time and your credit score will improve in the long run.
Loosing your Assets
When your loan defaults, banks have the right to repossess your assets. To get it back, you’ll have to first pay for all the outstanding debt plus the cost incurred by the bank. If it is a real property, The bank will send you a court order that your property will be auctioned. You’ll then be evicted eventually and you’ll lose your property and equity that you may have established.
Legal Consequences and Harassment
Chances are creditors may be suing you to recover their debts. If it is a mortgage loan and you have assigned or charged the property to the bank, your property will be auctioned off (likely at below market value – that may or may not cover the amount you owe to the bank). Banks and lenders often hire debt collectors to get back money owed by individuals and businesses. These people may not be pleasant to deal with.
Bankruptcy
Your creditors can eventually file bankruptcy against you with the Department of Insolvency, where they can seize your assets and sell them for proceeds to pay your creditors.
Being bankrupt also means the authority will impose restrictions on one (i.e. not being able to travel out of the country, not allowed to own business or work in certain professions and etc).
So, what are your options?
- Use all the initiatives that you can get at the moment. i.e Covid-19 moratorium and the government’s Prihatin Rakyat Economic Stimulus Package. Note that you may seek for a further repayment moratorium but do remember that the moratorium extension is no longer automatic. Borrowers will have to apply individually to their bank.
- Use your personal & EPF Savings and get some friendly flexible loans (from your family members and close friends who are capable and willing to help)
- Contact your bank as soon as possible and have the terms renegotiated. i.e. a lower monthly repayment amount at longer period of repayment.
- Consider debt consolidation loan, credit card balance transfers and refinancing plan. The goal is to have a lower repayment amount and lower interest rates.
- Seek help from the Credit Counselling and Debt Management Agency (AKPK) and enrol in their debt management programme(https://www.akpk.org.my/debt-management).
It is not going to be an easy journey but not an impossible one. Do seek help when necessary!
Reference:
- Impaired loans creep up to nine-year high (The Edge Markets / 05 Feb 2021)
- What Happens When You Miss A Home Loan Payment? (imoney.my/ 11 Jan 2011)
- What Happens If You Can’t Pay Your Loans In Malaysia Post-MCO (And How To Fix This Fast) (CompareHero.my / 1 July 2011)