Stick to new borrowing guidelines

Bank Negara should not loosen its new car loan guidelines as suggested by the Proton Edar Dealers Association of Malaysia (Pedar).

According to news reports,  Peda claims that  members’ income have been affected because with the new guidelines, only 30%  of the potential car buyers  have managed to secure  hire-purchase loans.

However there are good reasons why the guidelines are needed and must continue to be implemented.

Firstly, the Malaysian household debt service ratio reached 47.8% in 2010. This means that on average almost half of a household’s income goes to repaying debts. Thus after paying off the debt there is not much left to spend on food, transport, education, and for emergencies. Should the breadwinner fall sick or lose his job, the family will find it hard to make ends meet and loans may be defaulted.

Secondly, after housing loans, car loans constitute the next largest category of the household debt.

Lastly, the Insolvency Department announced last year that an average of 41 people were declared bankrupt every day and that the biggest cause of bankruptcy (26%) was hire- purchase loans.

Therefore the guideline must stay in place to so that ordinary Malaysians are not burdened with loans that consume a large part of their income. There are also social consequences on families having high household debts. They can lead to stress, depression, mental problem, suicides and may cause family break-ups

Letter to the Editor, 23 February 2012