How Repossession Works in Malaysia When You Don’t Pay Your Car Loan ?

A car loan is the first of the top four causes of bankruptcy in Malaysia, as reported by the Insolvency Department of Malaysia. That happens when a person finds that they cannot continue paying a car loan, thereby defaulting it.

When you find yourself being unable to pay a car loan, you run the risk of having your car repossessed by the bank that provided you the loan.

It doesn’t necessarily have to happen instantaneously after you missed one payment. However, it could be after the second or third missed payment, but different banks have different repossession terms.

The Process of Repossession

1. Pre-repossession Notice

After one or several missed payments, your bank will send you and your guarantor a pre-possession notice, also known as a Fourth Schedule notice. The notice gives you a 21-day notice to inform you that the bank is intending repossess the car. Following up with that will be a second notice given 14 days after the first.

If you have already paid up more than 75% of your car loan, a court order will need to be issued before your car can be repossessed.

2. The Repossession

After 21 days from the Fourth Schedule notice, the bank will have the right to repossess the car if any outstanding dues aren’t paid.

If you are unfortunate enough to have that happened to you, you should know that:
▪ Repossessors must get your consent first before entering your premises. 
▪ Repossessors must not use any strong force or oppressive measures to repossess the car. 
▪ Repossessors must have a standard notice that delivers information such as the address and telephone number you should contact. 
▪ Repossessors must give you reasonable time to remove your personal items and belongings.

Before the repossessor tows away your vehicle, he or she must produce: 
▪ Legal permit to repossess your car 
▪ MyKad
▪ The repossession order issued by your bank or the court order.

If you fall victim to the oppressive measures taken by the repossessors or if your rights have been wrongfully infringed during repossession, make a complaint to your bank. You may also complain to the Association of Hire Purchase Companies Malaysia to seek support.

3. Post-repossession Notice

After repossessing your car, the bank will send you a notice to inform you that it has successfully repossessed the car. 21 days after this, you will receive another notice, the Fifth Schedule. The Fifth Schedule notice states the amount you have due to pay the bank. This will typically include the missed payments and may include additional fees and charges from the bank.

Here are your options after your car has been repossessed:

i. Pay your loan arrears and other costs such as storage, repair or maintenance, cost of repossession and re-delivery in 21 days from the date of repossession.

ii. Pay your loan balance and other costs such as storage, repair or maintenance, cost of repossession and re-delivery in 21 days from the date of repossession.

iii. Find a purchaser to buy the vehicle at the price prescribed in the notice.

4. Disposal of the Vehicle Notice

After 21 days of the Fifth Schedule, if you haven’t paid the dues, then the bank will send you another notice stating that it will be disposing of the vehicle. The disposal process may either be sale through public auction or a private sale.

5. Selling the Vehicle

The selling of the vehicle by the bank will begin 14 days after it has served you the disposal notice. Typically, the auctioned price will be started at a value that is lower than the current market value. The proceeds from the sale of the vehicle will be used to pay any dues to the bank; if the amount is inadequate to cover the dues, then you will be required to pay the rest and also liable for legal fees as well as costs incurred to repossess and hold your car.

How to Avoid the Repossession?

i. If you know you’re having cash flow problem, you can discuss with the bank to restructure your car loan. The bank may revise your monthly payments and/or extend the tenure to ease your burden.

ii. If you can’t pay back what you owe and the bank refuses to revise your monthly payments, your best option at this stage is to sell your car before it gets to the repossession stage.

Read more: 
1. Boost App - The Malaysian Leading eWallet
2. Factors Affecting Low Credit Score in Malaysia
3. AirAsia BigPay - Sign Up Today To Get RM 10 Free Credit ! 

Edited by: 浪子

Bibliography

Lord Tan. (2018). What Happens When You Don’t Pay Your Car Loan? Retrieved from https://www.comparehero.my/blog/what-happens-when-dont-pay-car-loan

Desiree Nair. (2016). Everything Banks Can (Legally!) Do to You If You Don’t Pay Back Your Loans. Retrieved from https://ringgitplus.com/en/blog/Banking/Everything-Banks-Can-Legally-Do-to-You-If-You-Don-t-Pay-Back-Your-Loans.html

Michelle Brohier. (2017). The Bank Has Repossessed Your Car! What Should You Do Now? Retrieved from https://www.imoney.my/articles/what-to-do-when-your-car-is-repossessed