Credit Squeeze Hits Auto Industry

Banks are rejecting close to 60% of vehicle loan applications amid a credit squeeze.

Top on their red-flag list are applicants with two or more instalment defaults on other loans.

Nanyang Siang Pau reported today that apart from raising interest rates, banks are now more stringent in processing vehicle loan applications in order to lower the risk of bad loans.

"Defaulting on two instalments on any previous loan is enough to cost an applicant a rejection," a source said.

"However, it also depends on the period of default. If it is just one or two days each time, or if the borrower had forgotten about the due date, it is another story.

"But if the applicant had defaulted up to a month in repayment, it calls into question his/her ability to repay a loan," the source added.

As a matter of practice, banks consult the Central Credit Reference Information System (CCRIS) or CTOS (Credit Tip-off Service) to check the credit reports of loan applicants.

The credit reports provided by CCRIS or CTOS contain individuals' financial history specifically related to their ability to repay borrowed money.

This means past or existing loans or even credit cards held with other financial institutions will have a bearing on new loan applications.

Bank Negara Malaysia's statistics showed that of the total vehicle loans of RM7.24 billion applied for in May, only RM3.72 billion, or 51%, was approved.

The vehicle loan approval rate dropped further to 48% in June when only RM3.66 billion from a total of RM7.55 billion applied for was approved.

Perodua president and chief executive officer Datuk Aminar Rashid Salleh said many people want to make a booking but find it hard to secure loans.

"The rate of rejection of car loans is 40-45%," he said.

Federation of Motor and Credit Companies Association of Malaysia president Datuk Tony Khor said the used car business has also been hit hard by the credit squeeze and as much as 60% of the used car loan applications have been rejected.

Source:http://www.thesundaily.my/news/1158234

Can You Afford to Buy a Car?

According to a news item, Driven to bankruptcy, it is reported that Those who defaulted on car loans continue to top the list of bankrupts, and their numbers are increasing every year. Easy-to-get car loans have driven more Malaysians into bankruptcy, with the numbers soaring, especially in the last six years. Of the more than 100,000 people declared bankrupt between 2005 and September this year (2011), 25 percent comprised those who had defaulted on their car loans.

When you decide to buy a car, consider the following:

1.      Down payment: Do not settle for the minimum amount because the more you make the initial payment the smaller will be the loan amount and the less interest you will pay. Save more for a bigger down payment.  

2.      Monthly installment: Have you factored in the monthly installment payment into your monthly budget? It is going to be featured in your cash outflow for a couple of years. Your take-home pay must be able to accommodate this amount apart from the usual household and other expenses.  

3.      Toll charges, parking, and petrol: These items will be additional expenses and you also need to allocate a fixed amount in your monthly budget.  

4.      Insurance premium and road tax: It happens once a year but you need to save an amount every month so that when it is due in a year’s time you will have enough money to cover these mandatory expenses. 

5.      Regular maintenance: Your car needs to maintain regularly like changing engine oil and oil filter and not to mention other replaceable parts. Again it is prudent to save an amount on a monthly basis to meet such expenses.

6.      Wear and tear: Items like tires and battery may last longer but these major items will need to be replaced one fine day. Can you afford not to save a sum of money to cover such expenditures?

7.      Preserving the value of your car: Your car needs your attention. You need to tidy the interior and wash the body regularly to preserve the shine and glitter. Is your car going to be left outdoor under the scorching sun and the acidic rain? The value of your car will depreciate faster without proper care. You have to drive with care and avoid an accident and getting dented or scratched here and there.   

Do your homework:

Just fill in the chart to see if you have an excess of income over expenses or there is a shortfall of income in meeting your monthly expenses:

MONTHLY BUDGET
	$
INCOME
TAKE HOME PAY
OTHER INCOME
TOTAL (A)
EXPENSES
GROCERY EXPENSES
CHILD ALLOWANCE
INSURANCE
MORTGAGE
ENTERTAINMENT
CAR LOAN
PETROL, PARKING & TOLL
MOTOR VEHICLE RELATED EXPENSES
EMERGENCY FUND
UTILITY BILLS
SAVINGS
OTHER EXPENSES
TOTAL (B)
EXCESS/SHORTFALL OF INCOME OVER EXPENSES (A-B)

Remark:

Motor vehicle-related expenses is an amount to save every month to cover road tax, insurance, maintenance expenses, and other major replacement items       

If your total cash outflow is more than your income, you can forget about getting a car.

Conclusion

A car offers great convenience going places. Maintaining a car is a different story. Consider all expenses involved before driving away from a  car from the showroom. Your excitement can be short-lived and what you actually get is financial burden and misery   

Car Loans and Bankruptcy in Malaysia

According to a report in The Star, more than 500 people, mostly aged between 35 and 44 years, were declared bankrupt every month from January to May this year because they failed to service their motor vehicle loans

Once a person is declared bankrupt he will be restricted from, among others, traveling overseas, holding the post of a company director, and will have to give up his assets, including property and cars. He must contribute to the bankruptcy estate, and will only be discharged once the sum owed is settled.

Under the hire purchase agreement, the bank repossesses the car if the borrower defaults the monthly installments for three consecutive months.

It will sell off the car to recover the sum owed and if the amount still owed is more than RM30000 the bank will file a bankruptcy petition in the High court.

In the case where the sum owed is below RM30000 the bank will wait until the amount, with accumulated interest, balloons to RM30000 before filing the petition

How do you avoid a default in car loans and bankruptcy? Read 10 Tips to Avoid a Default on a Car Loan and Bankruptcy.