Not so easy to get car loans due to stringent checks
It is harder now to get a loan to buy a new or used car – financial institutions have tightened conditions for all applications.
The banks are now verifying the credit standing of borrowers to reduce risks.
“We have no choice but to impose drastic measures because of the uncertainty in the automobile industry, particularly car prices, in the last six months,” said a senior credit officer with a major bank.
He said financial institutions were worried that falling car prices, which resulted in a glut of used cars, would result in more people buying cars if loans were “easily available.”
The new screening measures, adopted by all banks two months ago, were to ensure that borrowers could repay their loans and to weed out potential defaulters.
“Even when we repossess the cars from defaulters, we may not be able to sell the vehicles and recover the loans based on the current market situation,” the officer explained.
All loan applications would now be subjected to a financial rating system based on Bank Negara’s Central Credit Reference Information System (CCRIS) and two private credit reference agencies – Credit Tip Off Service Sdn Bhd (CTOS) and Financial Information System (FIS) Sdn Bhd.
The officer said the applicant’s data such as name, MyKad number, occupation, salary, existing loans and other relevant details would be keyed into the system.
CTOS and FIS provide details of the individual’s credit standing with other banks, while CCRIS tracks a borrower’s repayment patterns, spending patterns and habits, as well as his credit card and other electronic transaction records in the last 10 to 20 years.
The collective data will then assign a credit rating – an A rating will render the applicant automatic qualification for the loan; a B rating means the loan can be considered; C means the application will be rejected but the borrower can appeal to the bank; while D means the rejection is final.
“If applicants don’t qualify instantly, chances are a higher interest rate would be imposed on them, or less credit will be offered with a shorter repayment period,” said the officer.
But in the current situation, banks are only looking at those with an A rating, he added.
Kuala Lumpur and Selangor Car Dealers and Credit Companies Association vice-president Dave Lim said the strict guidelines had adversely affected business.
“Many people don’t have good credit ratings, thus they are unable to borrow from banks to buy cars. If they cannot get the loans, we cannot sell our vehicles.
“This also applies to used cars. If people cannot sell their cars at a decent price, then they better not think about changing cars. And some people know that they will not be able to get a new loan for another car because of their bad repayment record.”
Lim said he could understand why financial institutions have adopted the new measures but “if they don’t relax the rules, the price of cars may drop further.”
The banks are now verifying the credit standing of borrowers to reduce risks.
“We have no choice but to impose drastic measures because of the uncertainty in the automobile industry, particularly car prices, in the last six months,” said a senior credit officer with a major bank.
He said financial institutions were worried that falling car prices, which resulted in a glut of used cars, would result in more people buying cars if loans were “easily available.”
The new screening measures, adopted by all banks two months ago, were to ensure that borrowers could repay their loans and to weed out potential defaulters.
“Even when we repossess the cars from defaulters, we may not be able to sell the vehicles and recover the loans based on the current market situation,” the officer explained.
All loan applications would now be subjected to a financial rating system based on Bank Negara’s Central Credit Reference Information System (CCRIS) and two private credit reference agencies – Credit Tip Off Service Sdn Bhd (CTOS) and Financial Information System (FIS) Sdn Bhd.
The officer said the applicant’s data such as name, MyKad number, occupation, salary, existing loans and other relevant details would be keyed into the system.
CTOS and FIS provide details of the individual’s credit standing with other banks, while CCRIS tracks a borrower’s repayment patterns, spending patterns and habits, as well as his credit card and other electronic transaction records in the last 10 to 20 years.
The collective data will then assign a credit rating – an A rating will render the applicant automatic qualification for the loan; a B rating means the loan can be considered; C means the application will be rejected but the borrower can appeal to the bank; while D means the rejection is final.
“If applicants don’t qualify instantly, chances are a higher interest rate would be imposed on them, or less credit will be offered with a shorter repayment period,” said the officer.
But in the current situation, banks are only looking at those with an A rating, he added.
Kuala Lumpur and Selangor Car Dealers and Credit Companies Association vice-president Dave Lim said the strict guidelines had adversely affected business.
“Many people don’t have good credit ratings, thus they are unable to borrow from banks to buy cars. If they cannot get the loans, we cannot sell our vehicles.
“This also applies to used cars. If people cannot sell their cars at a decent price, then they better not think about changing cars. And some people know that they will not be able to get a new loan for another car because of their bad repayment record.”
Lim said he could understand why financial institutions have adopted the new measures but “if they don’t relax the rules, the price of cars may drop further.”
<< Home