What happens when you don’t pay your Car Loan?
Buying a car in Malaysia is a pretty easy affair, especially when it comes to the more affordable cars such as the Perodua Axia or Proton Saga (roughly around RM30,000 or so). Low (or even zero) down-payments and long car loan tenures make car purchasing very accessible to most. Maintaining that purchase, though? That’s 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 happens when a person finds 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 discipline 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 the loan.
It doesn’t necessarily have to happen instantaneously after you missed one payment, however. It could be after the second or third missed payment, but differing banks have different repossession terms – it is best you clarify with your bank on that.
There are several different stages that are taken by the bank when they act to repossess your car.
1. Pre-repossession Notice(s)
After one or several missed payments, your bank will send you and your guarantor a pre-possession notice, also known as a Fourth Schedule notice. The notice gives you a 21-day notice to inform you that the bank is intending repossess the car. Following up with that will be a second notice given 14 days after the first.
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. 21 days after this, you will receive another notice, the Fifth Schedule. The Fifth Schedule notice states 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 sale through public auction or a private sale.
5. Selling the Vehicle
The selling of the vehicle by the bank will begin 14 days after it has served you the disposal notice. Typically, the auctioned price will be started 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 the 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.
Do keep in mind that when taking out a hire purchase loan for a car, you must be very 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.
In the meantime, if you’re looking to buy a car or a house for the first time, let us know which would you buy first and why in our survey here: Do you buy a House or a Car first?