Think before borrowing or becoming guarantor – AKPK


Article from Borneo Post4 July 2014


KUCHING: New and young workers in Sarawak are reminded to think carefully before they borrow from any financial institution.


Credit Counselling and Debt Management Agency (AKPK) said before borrowing a person must ask himself or herself the purpose of the loan.


Its Sarawak Region head, Marlene Margaret Nichol, said potential borrowers must keep in mind that they should only borrow to meet their needs and not their wants.


She said with numerous loans and credit cards offered by financial institutions in the market today, young workers were easily tempted to spend more money than they actually have through borrowings.


“Borrowing from financial institutions allows you to obtain money on loan or a line or credit to enable you to buy a house, car, pay your bills or even go on holidays.


“Although a loan is beneficial, particularly in helping you pay big purchases, it is crucial that you keep in mind that the money doesn’t come for free.


“Money on loans needs to be paid back, with interest and penalty charges when it is repaid late,” she said.


Margaret said that credit was a facility to borrow with an agreement to repay the creditor, as per the terms and conditions outlined in the contract.


“When a person borrows, he or she is taking on credit and when a person uses a credit facility, he or she is taking on debt.


“For example, you are given a credit card with a limit of RM3,000. If you have spent RM1,000 on your credit card, that RM1,000 of utilised credit now becomes a debt,” she said.


Margaret, who is also one of AKPK counsellors, suggested that when a person wanted to take a loan or use a credit card to purchase something, the person should ask himself or herself the following questions: Is the product or service I intend to purchase a need or a want? Can I afford to pay the instalments? If it is a substantial purchase, such as a car or house, can I pay a larger downpayment?


She said one should borrow for productive purposes only, borrow within one’s means – try to keep to a debt-to-income ratio of not more that 40 per cent.


“When you borrow, keep the 3Ps in mind – purpose of the loan, payment ability (repayment capacity) and payment history (having good track record).


“Understand the different type of interest and the effects they have on your total borrowing costs.


“Think carefully before agreeing to become a guarantor because if the borrower cannot or refuses to pay, you are liable,” she said.


AKPK is a wholly owned subsidiary of Bank Negara Malaysia, offering free-of-charge services not just to the borrowers, but also potential borrowers.


It offers financial education on the responsible use of credit and basic money management skills – its financial education programmes include ad-hoc tailor-made talks and briefings to various target groups, a personal financial management education programme (which normally targets university students) and the POWER! programme, designed to equip individuals with essential financial knowledge and ability to make responsible financial decisions.