Edited by Anis Shakirah Binti Mohd Muslimin
This article was first published on August 20, 2018, and has been edited and updated for accuracy and clarity.
Buying a car in Malaysia is a relatively easy affair, especially when it comes to the more affordable cars such as the Perodua Axia or Proton Saga. With low (or even zero) down payments and long car loan tenures, purchasing a car is accessible to most. Despite this, maintaining that purchase is another story altogether.
A car loan is the first of the top four causes of bankruptcy in Malaysia, as reported by the Insolvency Department of Malaysia. That usually happens when a person realises that they cannot continue paying a car loan, thereby defaulting it. While it is easy to get started on purchasing a car, you’ll need to be rather disciplined to continue paying for it monthly.
So, what happens when you find yourself being unable to pay a car loan? You run the risk of having your car repossessed by the bank that provided you with the loan.
It doesn’t necessarily have to happen instantaneously after you missed one payment, however. It could be after the second or even third missed payment – different banks have different repossession terms, so it is best you clarify with your bank.
With that said, there are several different stages that are taken by the banks when they act to repossess your car.
The car repossession process:
As part of the car repossession process, the bank will have to send the car owner a few notices as a reminder.
1. Pre-repossession notice(s)
If you’ve missed your car loan payment for two consecutive months, your bank will send you and your guarantor a pre-possession notice, also known as a Fourth Schedule notice.
The notice is intended to inform you that the bank is planning to repossess the car. You have 21 days after to sort out the matter to avoid repossession.
After 14 days, the bank will send another notice as a reminder.
2. The repossession
After that 21 days from the Fourth Schedule notice, the bank will have the right to repossess the car if any outstanding dues aren’t paid.
3. Post-repossession notice
After repossessing your car, the bank will send you a notice to inform you that it has successfully repossessed the car. After another 21 days upon receiving this notice, you will receive another notice, the Fifth Schedule, which will include the amount you have due to pay the bank.
The Fifth Schedule notice will indicate the amount you have due to pay the bank. This will typically include the missed payments and may include additional fees and charges from the bank.
4. Disposal of the vehicle notice
After 21 days of the Fifth Schedule, if you haven’t paid the dues, then the bank will send you another notice stating that it will be disposing of the vehicle.
The disposal process may either be sold through a public auction or a private sale.
5. Selling the vehicle
The vehicle will be sold by the bank 14 days after they served you the disposal notice.
Typically, the auctioned price will be at a value that is lower than the current market value. The proceeds from the sale of the vehicle will be used to pay any dues to the bank; if the amount doesn’t cover the dues, then you will be required to pay the rest.
Having your car repossessed is not a debacle that anyone would want to go through with. It isn’t an easy process to handle either, though most banks have a Code of Ethics on Repossession that makes the process as smooth and friendly as possible.
Regardless, if the unfortunate repossession of a car does happen to you, perhaps it is a sign that you may not be able to afford a car.
If your car does end up being repossessed, it’s important that you know your rights and the rules of repossession in Malaysia.
As a car owner, it’s important that you understand your rights as part of the Code of Ethics for Repossession
Car repossession rules in Malaysia based on the Code of Ethics for Repossession
The following points are part of Public Bank’s Code of Ethics but edited for clarity. Remember, that different banks will have different Codes of Ethics, so ensure that you check with your bank before the repossession process starts.
- Permit holders must ensure that they possess a current and valid permit during the course of carrying out the repossession work.
- The number of authorised permit holders performing repossession activities must be minimised unless circumstances warrant any additional assistance.
- Repossession work can only be carried out daily from 9 a.m. to 9 p.m.
- Permit holders issued with a repossession order by the owner should only gain entry into premises with the knowledge and consent of the occupant. Trespassing into private property is not allowed without a court order obtained by the owner.
- Permit holders issued with a repossession order by the owner should be well mannered and dressed decently. They should ensure the practice of professionalism and dignity in carrying out their work.
- The use of “strong-arm tactics” of any kind is strictly prohibited in the performance of their work.
- At the time of repossession, the permit holders should:
- Produce his permit, national registration card and give a standard notice to the hirer informing him of the address and telephone number of the legal owner and the authorised officers he/she can contact immediately to resolve any problem.
- Give a reasonable time to the hirer to inspect the motor vehicle or goods and remove his personal items and belongings.
- Take photographs of the interior and exterior of the motor vehicle or goods and provide such photographs to the legal owner.
- Cause to be issued an inventory list to state the status and the condition of the repossessed motor vehicle or goods.
- As far as possible, repossession should be undertaken in the presence of the hirer or any person authorised to use that motor vehicle or goods.
- A police report on the repossession should be lodged as soon as practicable and preferably within 24 hours—but in exceptional circumstances, not later than 48 hours from the time of repossession.
- Permit holders issued with a repossession order by the owner should at all times act in accordance with the laws, regulations, terms and conditions, code of ethics and guidelines issued by the Controller in the performance of their repossession activities.
- Permit holders should also observe any other Code of Ethics or Guidelines issued from time to time by the Controller.
Getting your car repossessed is a terrible situation to be in, but don’t let it discourage you. If anything, it’s a great opportunity to learn what NOT to do to avoid the possibility of this unfortunate event from repeating itself in the future.
No one wants their car to be repossessed. So as much as you can, find out what can be done before the bank repossesses your car.
How you can avoid your car from repossession
- Since the core of your problem is your financial difficulty, the next logical step is to discuss this matter with your bank. Find out if there’s a way for you to restructure your car loan.
- If you come to terms with your bank, they may revise your monthly payments and/or extend the tenure to help ease your burden. However, banks are in no obligation to revise your finances. So don’t expect them to help you if they are not willing to.
- If the bank refuses to revise your monthly payments, and you are not able to pay off what is due, your next best option is to sell your car before it enters the repossession stage. But the process of selling your car is not something that can be done overnight or even in a day, so ensure you have enough time to dispose of your vehicle and settle your loan with the bank.
- If none of these steps sounds doable to you, then the best way to avoid being in such a situation is to pay your loan on time.
- It is worth remembering that banks can’t repossess a car if the owner has paid more than 75% of their car loan. Doing so will require a court order.
- Another small but important detail is you are liable for legal fees and the costs incurred to repossess and hold your car.
Things to remember to avoid defaulting on your car loan
The best way to avoid your vehicle from being repossessed is to always be on top of your car loan payments, but we know how difficult it can be for many of us. So, here are just a few things to remember to help keep the repo man at bay.
- Make sure the vehicle you buy is one that you can afford, and not just based on the loan you are eligible for. Loan eligibility is never a sign of affordability.
- Before you say yes to a car, do your own calculation to see if you are capable of making the monthly repayments and won’t face any potential financial issues from it. Here’s a car loan calculator by CIMB Bank that you can use for starters.
- Financial advisors always talk about having an emergency fund, well this is why it’s necessary to have one! This fund would be able to cover your loan repayment if you end up losing your job or if you find yourself in a financially rough patch. Your emergency fund should be all-encompassing, not only covering your car loan but other financial commitments as well.
Car repossession can affect you in more ways than one
Not only will you lose your car, but having your car repossessed will also affect your credit rating and potentially make it more difficult for you to apply for loans or credit cards in the future. Remembering these repercussions are, as crazy as it sounds, a good incentive for you to continue making monetary payments on time.
Taking out a hire purchase loan for a car requires one to be disciplined to keep up with the monthly payments. It is vital to have a lot of preparation and calculations to ensure beforehand if you can truly afford a car.
We wish you all the best in your financial journey. Always remember to pay off your loans to avoid any bad circumstances and, most importantly, know your rights if you do end up in one!