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Borrowers can engage banks on vehicle loans to manage cost
Published on: Friday, February 05, 2021
By: Bernama
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Borrowers can engage banks on vehicle loans to manage cost
Borrowers can discuss with their respective banks on any concerns with regards to their loans.
Kuala Lumpur: Targeted repayment assistance (TRA) has come in handy for borrowers to adjust their loan instalments to amounts that they are comfortable with, amid the financial difficulties brought about by the health pandemic. However, as much as it eases borrowers’ current financial situation, it should not be viewed as a permanent arrangement, especially for hire purchase (HP) loans for motor vehicles. “This is because, an HP loan that is extended by more than three years could mean that the new loan tenure exceeds the expected economic life of the vehicle, since unlike land or property, all motor vehicles are depreciating assets,” said a source from the banking and financial industry.

This puts a borrower at a disadvantage with a vehicle which is still on loan but diluted in terms of its actual market value.

When a borrower with reduced financial circumstances requests for a low monthly instalment, it can result in an extension of timeline to repay the loan, which will lead to a much higher cost of borrowing.

To avert such a situation, borrowers can discuss with their respective banks on any concerns with regards to their loans, he said.

Banks on the other hand are obliged to discuss and advise borrowers on how best to deal with such implications, including the need to clearly explain the repayment options available. For instance, borrowers may agree to a lower instalment amount that will remain for the entirety of the tenure, or they may opt for more flexible repayment options (where borrowers gradually increase their monthly instalments in tandem with improvements to their financial circumstances). This can guide borrowers in making informed decisions based on their financial capabilities.

It is important for borrowers to be aware that they can re-engage their banks when their financial conditions have improved to discuss possible modifications to their repayment terms, in order to contain the overall borrowing costs which they have to bear. Borrowers can also contact their banks in the future to adjust their monthly instalment amount which will determine the remaining length of their HP loans, he explained.

An increase in monthly instalment amount will generally reduce the remaining length of loan tenure and overall cost of borrowing. – Bernama

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