What Happens When You Make Late Loan Repayments
Think that making late loan repayments is not a big deal? Think again. Whether it’s a personal loan, home loan, credit card or even study loan, here are the consequences that can happen if you miss your repayments.
1. You have to pay more
Whether it is repayment for a personal loan or your credit card, you will be charged late payment fees and other finance fees.
Something else you should know about is the tiered pricing system which was implemented by Bank Negara Malaysia. As a result of not making prompt payments, banks have the right to increase your interest rate.
This tiered pricing is for credit cards. For example, if you have a credit card with an interest rate of 15% per annum, the interest rate you will be charged can be increased to the maximum if you miss your repayments.
It was implemented in July 2008 to promote prudent financial management and encourage good financial discipline amongst credit card users. The tiered pricing structure is as below:
- Tier 1 – Maximum of 15% per annum (applicable to those who promptly settle their minimum payment for 12 consecutive months);
- Tier 2 – Maximum of 17% per annum (applicable to those who promptly settle their minimum payment amount for at least 10 months in a 12-month cycle)
- Tier 3 – Maximum of 18% per annum.
As for personal loans and home loans, banks have the right to increase your interest rate if you have been missing your repayments. Not all banks impose such practices, but most do, so paying all of your loans on time is the safest and better option.
2. You can lose your assets
When it comes to mortgage loans or hire purchase loans, aside from having to pay higher interest rates, you can actually lose your assets if you keep making late repayments. Make prompt repayments to avoid having to deal with your car being repossessed, or in other words, kereta kena tarik.
On top of having to pay for all of the arrears and late payment charges, you will also have to pay for the cost of your car being repossessed before you can get it back.
Once you’ve made ALL of the payments and obtained the letter from your bank for your car to be released, then you’ll have to get your car from where it has been stored by the bank. as you can see, making late payments is costly and will cause you a lot of hassle.
As for home loans, if there are arrears in your payments, you have the risk of having your home auctioned by the bank. Make sure you make prompt repayments for your home loans, instead of running around in a panic when you receive court orders that your house will be auctioned.
Ensure that you don’t miss out on repayments too as that is even worse than late payments. Remember, until you pay off all of the home loans in full, the house is not yours and still belongs to the bank.
3. You have problems applying for other loans or financial services in the future
If you have been making late payments for your loans, you jeopardise your access to financial options in the future because it will affect your credit score. Your poor repayment pattern will be reflected in your credit score, and your credit score is important because financial institutions and even some landlords will have a look at it.
The credit score is used by banks to determine whether or not to approve your loan application, and also how much interest you will be charged. If you have a bad credit score, you may be charged a high-interest rate or worse, your application will be rejected.
Some landlords will request for your credit score and this may be to see if you are disciplined with repayments for your existing financial commitments before agreeing to lease their property to you. Sometimes how well your credit score is will also decide if you get a job or not, especially if you are applying for a position related to financial services.
As you can already see, making sure your credit score is in good shape is important to ensure you get better offers when applying for financial services and products, as well as for your career. But don’t worry, you’re in control of having good credit score and one of the ways is to be disciplined with your repayments.
4. You may be barred from leaving the country
Don’t risk missing out on that holiday you’ve been planning and looking forward to for weeks! This is especially relevant for PTPTN borrowers. If you have outstanding PTPTN loans, PTPTN will inform the immigration department and you will then be blacklisted in the immigration’s database. As a result, you cannot leave the country, or even renew your passport until you make payments for your overdue amount of your PTPTN loan.