Typically, Malaysian banks use your credit score to assess the credibility of your financing/loan application. You can your credit score report copy from the Central Credit Reference Information System (CCRIS) of the Bank Negara Malaysia.
Usually, banks determine your credit score based on the following 3C’s:
- Your Character: This is revealed based on your attitude towards the loan – whether you are a diligent paymaster. Furthermore, banks also consider your duration of stay in your present address and/or your current job.
- Your Capital: This shows how much assets (investment, property, and savings) you possess that can be used as a collateral should you fail to repay your car loan.
- Your Capacity: This shows your income and your ability to repay your loan.
Repossession & How To Avoid It?
Owning a car is a constant duty starting from paying off your loan on time, maintain it well, and renewing your car insurance and road tax. Missing your monthly repayment schedule more than once puts your car at a risk of being repossessed by the bank. However, the repossession process does not start immediately. Usually, the bank sends you a repossession notice if you have missed two consecutive payments.
The best way to avoid repossession of your car is to make timely payment of your loan. But if you are facing a financial crunch, you can consider the following:
- Talk to your bank representative as soon as possible to understand if loan restructuring can be done. The bank may use its discretion to revise your monthly payments or extend the duration of your loan. This may lessen your burden considerably.
- If this option does not work out, then you can think of selling your car before the bank sends you the repossession notice.
- It is better not to buy a car if you know that you will not be able to afford it. Hence, do your calculation and know your affordability criteria before opting for a car loan/hire purchase loan. Remember a repossessed car is bound to affect your credit rating in future. It will pose as a hindrance if you want to get a loan or mortgage in future.
General Tips to Avoid Hurting Your Credit Score
- Make timely payments: It is never a good idea to make late payments a habit as it can damage your credit score. Once you hurt your credit score, it takes time to make it good. Later, if you have to apply for a loan, banks may decline your request based on your history of late payments.
- Have a healthy credit history: Having no credit rating is equally bad as having a poor rating as it shows your capability of handling your credit obligations. Banks generally view this as a negative attribute. Thus, try to have some credit report as it will help to earn points.
- Have a diverse portfolio: Always try to have a diverse portfolio consisting of mortgages, car loans, house loans, credit cards, and personal loans. If your credit score shows only one type of debt, then this could affect your credit score negatively.
- Never take a loan to repay another: Taking a loan to repay another is never a good idea as it will only enhance your burden. Moreover, if you have a bad credit score, the bank will also not approve to such a loan application.