Key Takeaways
- In Malaysia, a personal loan default occurs if no payment is made for 90 days or if other loan terms are violated.
- Consequences of personal loan defaults include credit score impact, debt collection, and legal actions.
- Strategies to avoid personal loan default in Malaysia include debt consolidation, family support, emergency funds and more.
Dive into a topic that’s vital for anyone managing their finances in Malaysia: personal loan default.
Understanding what it means to default on a loan and the consequences it can have is essential for maintaining your financial health.
Whether you’re thinking about taking out a personal loan or you’re currently repaying one, knowing the pitfalls can help you avoid financial trouble.
In this article, we explore what are personal loan defaults in Malaysia, discuss the consequences, and offer you practical tips to keep you on track.
What is a Personal Loan Default in Malaysia?
Understanding what constitutes a personal loan default is crucial for any borrower.
A personal loan default in Malaysia typically occurs when you go 90 days without making a scheduled payment or breach other terms of your loan agreement.
This period can vary based on the financial institution and the type of loan—secured or unsecured.
What’s more, the loan is often considered delinquent right after you miss a payment deadline.
However, most financial institutions provide a grace period during which you can make late payments without incurring penalties.
Personal Loan Default Example
Consider the case of Rachel, who had been diligently making on-time payments on her personal loan for six months.
Unfortunately, after losing her job, Rachel missed a payment and the very next day, her bank imposed an RM25 late fee for missing the due date.
As she continued to miss payments, additional late fees were added, and her missed payments were reported to the credit bureaus.
After three months without a payment, Rachel’s loan went into default, severely damaging her credit score.
This example highlights the importance of keeping up with loan payments and understanding the terms set by your financial institution.
A personal loan default can have long-lasting effects on your financial health, so it’s vital to manage your loans carefully and seek assistance if you start to fall behind.
What are the Consequences of a Personal Loan Default in Malaysia?
A personal loan default can have several serious consequences that not only affect your immediate financial stability but can also have long-lasting effects on your overall financial future.
Here are the main consequences you might face:
1. It’ll Hurt Your Credit Score
One of the most immediate and impactful consequences of a personal loan default is the damage to your credit score.
Late payments are reported to credit bureaus even before your loan officially enters default status.
Moreover, depending on your original credit score and the length of the payment delay, the negative impact can be significant.
A low credit score can complicate your ability to secure credit down the line and impact various other areas of your life, including:
- renting housing,
- buying a home,
- securing a job,
- and more.
2. Debt Collection Efforts
Once a loan is in default, the financial institution will attempt to recover the money owed. This process often involves turning over the account to a debt collection agency.
However, it’s important to note that they must observe the Fair Debt Collection Practices Act (FDCPA), which prevents harassment and unfair practices.
3. Legal Action
Lastly, if the outstanding debt remains unpaid, the financial institution may escalate the situation by taking legal action against you.
This could lead to court judgments, wage garnishments, or liens against your assets.
Read More: Personal Loan Scam in Malaysia: How to Stay Safe
How to Avoid a Personal Loan Default in Malaysia?
1. Contact Your Bank
If you foresee financial challenges, it’s essential to communicate with your bank early.
Many financial institutions offer deferred payments or modified payment plans to help borrowers manage their debt and avoid personal loan default.
2. Loan Affordability Check
Before taking out a loan, make sure you can afford the monthly payments by assessing your income and expenses. Fully understanding the loan terms, including interest rates and repayment schedules, is crucial.
3. Consider Debt Consolidation
If you’re juggling multiple debts and nearing default, consider consolidating them into one loan with potentially better terms.
However, ensure you have a solid repayment plan in place to make the most of this strategy.
4. Seek Help from Family
If feasible, ask your family for help, but agree on clear repayment terms first, especially if they co-sign your loan.
5. Use Your Emergency Fund
Using your emergency savings can prevent you from missing loan payments.
If you decide to use these funds, make a plan to replenish them as soon as your financial situation improves, ensuring that you’re prepared for future emergencies.
6. Try a Balance Transfer Credit Card
Moving your loan to a credit card with a 0% introductory APR can alleviate payment pressures temporarily.
It allows you to avoid interest charges for a period, making it easier to reduce the principal.
But, ensure you can repay the balance before the promotional period ends to avoid potentially higher interest rates later.
7. Explore Credit Counselling
Finally, if you’ve exhausted other options and still find managing your debt challenging, seeking advice from a credit counsellor can be beneficial.
Credit counselling agencies can provide guidance on debt management and help negotiate with creditors to find workable solutions for your financial issues.
Read More: Personal Loan Malaysia: All You Need to Know Before Applying
How Bluebricks Can Help with Personal Loan Defaults in Malaysia
Bluebricks is a comprehensive bank loan and debt consolidation agency in Malaysia offering various loan services:
- Personal loan services
- SME loan services
- Mortgage loan services (for buying a new home, refinancing and cashback purposes)
- Collateral loan services
Trusted Loan Consultancy Services
Our loan experts recommend the most suitable loan products based on your:
- The specific loan amount you require.
- The urgency with which the loan amount is needed.
- Whether you or your parents own a property that has been held for over ten years.
- Your income level.
- Your CTOS score (such as your credit score and credit history).
Why Bluebricks
1. One of the Top 10 Leading Loan Agencies in Malaysia
Our loan agents represent both individuals and businesses, offering technical and financial advice to help secure loan approvals. Even if banks have previously rejected you, we provide access to a broad spectrum of loan options. Our aim is to enhance the success rate of your loan applications and minimise rejections.
2. Over 10 Years of Experience
With over a decade of experience and current banking knowledge, we excel in securing personal, business, mortgage, and collateral loans, navigating challenges like CTOS/CCRIS, and guiding clients confidently towards successful loan approvals.
3. One-Stop Solution
We provide a one-stop loan service, compiling various options from banks and credit institutions for you. Simply submit your income statement, assets, liabilities, employment record, and credit history, and we’ll handle the collateral and documentation to streamline your loan approval process.
4. Full Financing with 100% Bank Loans
We ensure 100% bank loan availability to provide full financial support, making it easier to achieve your goals and build a positive credit history.
5. No Upfront Payment Required
Our no upfront payment policy is designed to ease your financial journey, allowing you to start your investment without initial costs, reducing immediate burden and demonstrating our commitment to your satisfaction and trust.
Personal Loan Default – FAQs
In this section, we delve into the most frequently asked questions about personal loan defaults in Malaysia.
Having a personal loan default on your credit history significantly reduces your ability to borrow money. When applying for credit, banks review your credit report to assess your likelihood of repayment.
A personal loan default indicates previous difficulties in repaying loans, which often discourages banks from approving new credit applications.
In Malaysia, the legal timeframe for pursuing a debt from a personal loan default is six years. This means that creditors have up to six years from the date the debt first becomes overdue to initiate legal action to recover the amount owed.
A personal loan default is a serious negative mark on your credit history. It reflects missed or stopped payments and will be on your credit report for seven years.
