Hire purchase the top reason for bankruptcy

PETALING JAYA: Contrary to what people may think, the top reason for bankruptcy in the country is most often caused by car loans, or hire purchase, given that a car is a depreciating asset, said Credit Counselling and Debt Management Agency (AKPK) financial education manager Nirmala Supramaniam ( pix).

She said the mistake that most people make is calculating one’s income and looking at how much one can afford based on the monthly car instalment.

“But owning a car is more than that and we fail to calculate the petrol, parking, maintenance, service, road tax and insurance. Probably a car that I’m paying RM700 a month for, I should have RM1,400 allocated for it to include other expenses,” Nirmala explained to SunBiz recently.

She said most people do not have a problem paying the instalments but find it difficult to maintain the car. Eventually these people will default as they have created loans to maintain the car and when they do not have enough to pay, the car will be put up for auction.

“It’s a depreciating asset and when auctioned off, one still needs to pay the balance. You can be declared a bankrupt when your loan balance is above RM30,000. When you look at a house, it’s a bigger amount but it’s an appreciating asset. If the property is auctioned there would be extra to settle the payment.” Nirmala said the financial literacy level among Malaysians is still not up to par and education is needed, especially on loans and the things that people purchase, as well as the conditions and consequences to it.

“Consumer empowerment is needed. For example, as a guarantor, you need to know your rights. Sometimes people just sign the papers and they don’t know the obligations.”

She said insolvency statistics showed that those who are bankrupt are mostly 35-44 years old.

“But when you look at the real reason, it’s because when they were younger, they did not plan and were thinking of enjoying first.”