Banks creating debt traps

The disturbing trend whereby banks entice consumers to take up personal loans should be stopped before more consumers fall into the debt trap.

Recently a bank sent personalised letters to the employees (whose salaries are directly credited into their accounts with the bank) of a multinational company offering each a personal loan of RM5,000.

“Fast Cash Without Hassles – only a tick & a signature away!!!” says the letter.

The loans may be hassle-free but it is definitely not cheap. With interest of 3% per month, it is double that of credit cards whose monthly interest of 1.5% is already considered high.

A person who has signed up for a 2-year loan pays RM296 a month or a total of RM7,104. For a 5-year loan, the monthly payment is RM181 and at the end of the period the worker would have paid RM10,860, double the amount borrowed.

This is not the first time that banks are offering easy loans.  Off and on they have been sending out personalised cheques to credit card holders urging them to take up the instant cash offer.

Bank Negara must stop the banks from tempting people into debt. It must ensure that banks act responsibly.  If we become a nation of borrowers we will one day pay dearly the unwanted societal and economic effects.