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If you\u2019ve landed on this article, chances are you\u2019ve had your income affected one way or another. With that comes the worry about how you\u2019re going to pay off your commitments.<\/p>\n
The unfortunate reality is that the Covid-19 pandemic and the movement control order has affected hundreds and thousands of people around the world. Malaysia isn\u2019t spared – as of 2nd June 2020, a total of 12.7 million Malaysians were left unemployed<\/a>. This figure is expected to climb up to 2 million people<\/a> according to Malaysian Employers Federation executive director Datuk Shamsuddin Bardan.<\/p>\n If you\u2019re part of this statistic, you may start to reduce cost of living as you try to repay your commitments. While ignorance is bliss, don\u2019t be in for a rude awakening when your debt catches up to you. We don\u2019t like being the bearer of bad news, but to help you prepare yourself, here\u2019s what happens if you don’t pay back a loan<\/strong>. (Don\u2019t worry – we\u2019ve got some solutions later on!)<\/p>\n Regardless whether it\u2019s your credit card (yes, it\u2019s technically a loan since you\u2019re using borrowed money), mortgage, car loan, or personal loan, you\u2019ll start accumulating extra fees when you start to skip loan payments<\/strong> or skip credit card payment. As a result of missing your payments, banks are allowed to charge you interests depending on the rate you\u2019d have previously signed on during your application.<\/p>\n It only grows because of compounding interest rates<\/strong>. Let\u2019s say you owe the bank RM1000. As you miss your payment, you get charged, say, a 15% interest rate. Your current debt rises to RM1,150. Miss your payment again, and you\u2019ll get charged another 15% on top of the now-increased balance, bringing your total sum to RM1,322.50. If you neglect paying your monthly dues, it will take only 5 months to bring your initial debt of RM1,000 to RM2,000!<\/p>\n To add to that, banks also have the right to increase your interest rate<\/strong>. The initial 15% (or whatever rate you signed to) can grow to 17% and 18%, depending on how badly you repay your debt.<\/p>\n When it comes to increasing your interest rates, the same goes for personal loans and home loans. While not all banks impose such practices, most do this in order to make you take your repayments seriously.<\/p>\n This is especially true when it comes to repaying your education loan (PTPTN). While you will still have your passport, you won\u2019t be able to get past immigration as your name will be under the immigration no-fly blacklist.<\/p>\n The great thing is that you don\u2019t necessarily have to pay off the full amount. If you get stopped at immigration, you can make a call to PTPTN on the spot to ask them about how much outstanding debt you have, and the minimum amount you need to pay in order for you to get past immigration. If you have a credit card, you can charge that minimum to your card<\/strong> via that phone call\u2026 provided it doesn\u2019t exceed your credit limit, of course.<\/p>\n Related:<\/strong> What Happens If You Don\u2019t Pay Your PTPTN Loan<\/a><\/p>\n Ever heard of the term \u2018kereta tarik\u2019? Well, when your loan defaults, banks have the right to repossess your assets and basically \u2018tarik balik kereta\u2019<\/strong>. To get it back, you\u2019ll have to first pay for all the outstanding debt and the cost of your car being repossessed. This is not just pricey, but extremely time consuming.<\/p>\n Likewise with your home<\/strong> – the bank will send you a court order that your house will be auctioned. You\u2019ll then be evicted eventually and you\u2019ll lose your home and equity that you may have established. Remember, until you pay off all of the home loan in full, the house is not yours and still belongs to the bank.<\/p>\n Read also:<\/strong> What happens when you don\u2019t pay your car loan?<\/a><\/p>\n Is defaulting on a loan a crime? Technically, no, but money lenders would likely turn to suing you if you can\u2019t pay your debt. You may think, \u201cSue me for what? I have no money to pay also.\u201d Well\u2026 they sue for three reasons:<\/p>\n At this point, your credit score would have been completely destroyed<\/strong>. It\u2019s pretty horrible to think that you\u2019re pretty much unable to get any financial help right when you need it the most. However, at this point, lenders would see you as a high risk borrower due to the missed payments, so you will not get any financial help from any licensed lender.<\/p>\n This is usually the tipping point for borrowers to finally turn to Ah Longs, and we\u2019re sure you\u2019ve watched enough TV to know how that would end up. (Read: really badly.)<\/p>\n Part of some of the consequences of not paying loans could include dealing with some pretty unpleasant people. Banks and lenders often hire debt collectors to get back money owed by individuals and businesses. Actually it\u2019s not just them – even utility companies and telcos do the same. Debt collecting is legal in Malaysia<\/strong>, but only if undertaken by licensed debt collecting agencies. Bank Negara is pretty cool with them as long as these agents adopt good practices.<\/p>\n While some of these agencies are pretty gentlemanly with their debt collecting (e.g. calling debtors to remind them about payment, send debt statements, repayment notices, demand letters etc.), there are some who would also meet debtors to negotiate a repayment face-to-face.<\/p>\n Unfortunately, regulations are pretty lax in this field so there are plenty of instances of agencies operating in a\u2026 err\u2026 less than pleasant way. Think harassment and threats, over and over again<\/strong>. Just so you know, it\u2019s actually illegal to do this. In fact, they can\u2019t even call you more than three times a week!<\/p>\n Read more about your rights against debt collectors in our previous article here<\/a>.<\/p>\n Failure to pay back a loan can result in bankruptcy, and it is probably the worst thing that could happen to you. 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<\/strong>.<\/p>\n Here\u2019s what to expect in cases of bankruptcy:<\/p>\n Now, we know that the previous section was really dreary, but we hope that you\u2019re reading this in time before things escalate to your breaking point. Here\u2019s what you can do to cushion the blow, and hopefully get back on your feet again.<\/p>\n By now we\u2019re sure you\u2019ve heard of the Covid-19 moratorium<\/a>. From 1st April 2020 onwards, all banks will be offering postponement on loan and financing repayments over the coming 6 months. In other words, you won\u2019t need to make your monthly loan repayments anymore till the end of September 2020. To understand more, read our Covid-19 moratorium guide here<\/a>.<\/p>\n The government also introduced the Prihatin Rakyat Economic Stimulus Package 2020<\/a> in an effort to preserve the welfare and wellbeing of Malaysians. See if you are eligible for any of the benefits below:<\/p>\n A) Bantuan Prihatin Nasional<\/strong><\/p>\n B) Private Retirement Scheme (PRS)<\/strong><\/p>\n Allows early withdrawal of up to RM1,500 from Private Retirement Scheme account B without tax penalty from April to December 2020<\/p>\n C) Exemptions on housing and business premise rentals<\/strong><\/p>\n D) Cash assistance for e-hailing drivers<\/strong><\/p>\n A one-off cash assistance of RM500 to full-time e-hailing drivers<\/p>\n Read also:<\/strong> A Complete Guide To Employment Insurance System (EIS) Benefits In Malaysia<\/a><\/p>\n As part of the Covid-19 i-Lestari Account 2 Withdrawal Scheme, you can now withdraw up to RM500 every month from your EPF Account 2<\/strong>, starting 1 April 2020. However, all EPF contributors must be below 55 years old to be eligible.<\/p>\n If you don\u2019t fall into that category, don\u2019t fret – you can still withdraw from your Account 2 for big-ticket purchases<\/strong>. While we\u2019re unable to withdraw for debts from credit cards at this point in time, you can still use it to pay off some of your existing loans such as your mortgage and education (PTPTN). This will at least give you some runway space so you don\u2019t default on your loans while trying to rebuild your income stream.<\/p>\n There are more situations for when you can withdraw \u2013 you can explore them in our previous article here<\/a>. All these also do come with some T&Cs which you can view on the EPF site<\/a> itself.<\/p>\n Yep, it\u2019s exactly what it sounds. The mother of all debts, the mega debt. But\u2026 why on earth would you want to take on another loan when you already have so much debt?!<\/p>\n Well, debt consolidation loans were made with a single purpose: to help borrowers get out of debt. Let us explain. Imagine if you could combine everything into one loan at a single interest rate. This, my friend, is called a debt consolidation loan<\/a>.<\/p>\n So, let\u2019s say you have three credit cards with an interest rate of 15%, and each card has an outstanding of about RM5,000. To add to that, you have a personal loan worth RM50,000 which you\u2019re using for your side hustle, and that has an interest rate of 7%. You also have your car loan to account for, and your total debt to date may round up to RM200,000 or so. (And this will only grow if you don\u2019t make the minimal payments to each one of your loans.)<\/p>\n With a debt consolidation loan, you\u2019ll get to simplify this mess by combining all your debts into one. Think of it as the bank buying all your existing debt from other creditors, and in exchange, you repay that total amount to only one bank. Not only is this a lot easier to manage, but it can even save you money in the long run if one of your debts has a higher interest rate.<\/p>\n It wouldn\u2019t hurt to browse through some debt consolidation loans and calculate how much you need to borrow\/return according to your ability – just head over here<\/a>.<\/p>\n Read also:<\/strong> How do debt consolidation loans work?<\/a><\/p>\n This is kinda like a debt consolidation loan, only that this revolves around credit cards. Yes, credit cards still count as loans since you\u2019re technically borrowing money from the bank to pay for stuff before you actually pay for them!<\/p>\n If you\u2019re struggling to pay off your bills every month, you can combine all the debt from several credit cards onto one new credit card<\/strong>. Yes, we hear you. \u201cWhy sign up for another credit card when I already have credit card debt?!\u201d<\/p>\n See, the end goal here is to use this card as your \u201cdebt holding\u201d card. (And may we suggest that you put your other cards aside after performing a balance transfer until you have full control of your finances.)<\/p>\n With balance transfers, you can take advantage of a lower interest rate. Plus, some banks even offer a 0% interest rate if you can pay off your debt within a short amount of time (e.g. 6-12 months)! However, other terms may apply depending on the card issuer (e.g. paying a one-time fee of 3% on the balance transfer amount).<\/p>\n Read also:<\/strong> The Best Balance Transfer Plans in Malaysia<\/a><\/p>\n As simple as this sounds, yes, you can always bring your woes to your bank or lender. Tell them about your situation, and see how they can help you work around it. If you\u2019ve been repaying your loans pretty consistently, you could have a better chance in winning their favour.<\/p>\n Your solution could be in the form of refinancing<\/strong> (basically readjusting your loan terms), or giving up your assets without foreclosing<\/strong>. If the latter happens, it would be wiser to give up your home without a taint on your records as you move to something a little more budget-friendly.<\/p>\n Regardless, just find time to speak to your creditors. At the end of the day, it\u2019s their goal to get their money back\u2026 so they\u2019ll do what they can to help you within their means too.<\/p>\n Even in trying times like these, it\u2019s still possible to repay your loans without defaulting, as long as you keep a very close eye on your cash flow and commitments. If you\u2019ve been recently unemployed, there are ways to work around your job loss in order for you to secure some financing help<\/a> while you try to get back on your feet.<\/p>\n If you need some financial boost (with the confidence that you can repay responsibly, of course), you can always browse through some of the existing personal loans available now. There are some with interest rates as low as 3.27%, and there are loans for sums as small as RM1,000. Browse them all here<\/a>.<\/p>\n However, if you need more help, you can always consider signing up for credit counselling. For starters, Agensi Kaunselling dan Pengurusan Kredit (AKPK) provides financial counselling sessions and debt management programs to Malaysians, all for free. If you have extra cash, you can even speak to a hired financial counsellor for some hands-on help to manage your repayment.<\/p>\nWhat could happen if you can\u2019t pay off your loans in Malaysia<\/h2>\n
1. You will have to pay more. (Like, a LOT more.)<\/h3>\n
2. You can be barred from leaving the country.<\/h3>\n
3. You can lose your assets.<\/h3>\n
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When push comes to shove, you may get your assets repossessed. <\/em><\/p>\n4. You can be sued.<\/h3>\n
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5. You will not get any financial help.<\/h3>\n
6. You may meet with unpleasant debt collectors.<\/h3>\n
7. You may be filed for bankruptcy.<\/h3>\n
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Can\u2019t pay off your loans? Here are some solutions to try.<\/h2>\n
1. Use all the initiatives that you can get at the moment<\/h3>\n
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2. Use EPF savings<\/h3>\n
3. Consider a debt consolidation loan<\/h3>\n
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Debt consolidation loans can oftentimes help with managing all your existing loans.<\/em><\/p>\n4. Take advantage of balance transfers<\/h3>\n
5. Discuss with your bank\/lender<\/h3>\n
It\u2019s entirely possible to repay your loans without defaulting<\/h2>\n