Time for rules, transparency on loans, says financial planner

 

Kelvin Goh says borrowers misunderstand the types of bank loans available and their rates, resulting in higher repayments.

PETALING JAYA: A financial adviser has proposed that the government introduce guidelines for transparency in loan marketing.

Kelvin Goh, a certified financial planner with Ringgit Minded, called for the government to require lenders to include the effective lending rate when advertising a loan to reflect its true cost.

“When all banks are mandated to disclose the effective rate, it becomes easier for consumers to make meaningful comparisons, leading to a fair and more competitive lending environment,” he told FMT.

For example, Goh said, some borrowers had misunderstood that personal loans with a 4% interest rate (the flat rate) were cheaper than home loan refinancing with a 5% lending rate (the effective rate).

“The conversion from a 4% flat rate to an effective rate of approximately 7% reveals that the personal loan is actually more expensive than the refinancing loan,” he said.

He was commenting on Kota Melaka MP Khoo Poay Tiong’s call for the finance ministry and Bank Negara Malaysia (BNM) to review the action of banks and e-wallet companies that facilitate easy access to personal loans.

Given that 49% of bankruptcy cases involved personal loans, Khoo said, it was likely that banks and e-wallet providers were aggressively marketing these loans to the detriment of the public.

Goh said bankruptcy was also due in part to how banks approved loans. He said BNM should standardise the exposure limit for personal loans, setting them at 12 to 24 months of income.

“For example, in Singapore, the government limits the total amount a person can borrow (in) unsecured loans to a maximum of 12 times their monthly income, but we do not have such a restriction in Malaysia,” he said.

Make people financial literate

Meanwhile, Fazli Sabri of Universiti Putra Malaysia said the government should raise the financial literacy of borrowers. He suggested that a dedicated subject on personal finance be introduced and made mandatory at the college and university levels.

“We want to make sure that everyone understands the fundamentals, such as what you should consider before applying for a new loan, and what to do if you are having difficulty (repaying the loan),” he said.

“The subject would also cover topics such as insurance, credit risk management flow, wills and zakat.” - FMT