Loans for Bankrupt Individuals

There are sometimes situations that make your financial situation very difficult and loans are the only things a person could do. For someone who has been declared bankrupt in Malaysia, the possibility of applying for a loan from financial institutions will be quite slim. Thankfully, there are several ways a person can go about when trying to secure a loan. We take a look at these to find out more about loans for bankrupts in Malaysia when it comes to requirements, how to get loans, interest rates to pay and what can be done to prevent trouble down the road.

Criteria and Requirements for Loans for Bankrupt Individuals

If you’ve been declared bankrupt, getting a loan may not be as easy as it once was. But it’s not impossible. There are still a number of key criteria and requirements that need to be satisfied before your loan application will be accepted.

Loan Limit for Bankrupt Individuals

If you're declared bankrupt, you are limited in the amount of loan you can apply for. The provisions of Insolvency Act 1967 state that only bankrupts are allowable up to a loan of RM1, 000. Anything more than this amount must be declared to the lender.

For instance, if you wanted to borrow RM2,000, you would be required to inform your lender of your bankruptcy status and obtain their consent. If you failed to make the required disclosure, the law would treat your loan application as an offence which is punishable by prosecution.

Disclosure of Bankruptcy Status to Lenders

Be truthful when applying for a loan as a bankrupt. If you would like to borrow money and are currently bankrupt, you will need to inform the lender of your current situation. Not revealing your status as a bankrupt is a very serious criminal offence that can lead to fines and/or imprisonment. Thus, it is vital to comply with all the terms of the Insolvency Act 1967.

Loan Application Process for Bankrupt Individuals

Although bankrupt individuals might find applying for loans to be a hassle, the process still exists. Often, bankrupts need to fill out a few steps.

Risk Assessment by Lenders

Before securing the loan, the lender does a risk assessment for your repayment ability. They’ll look at your financial record, your debt repayment history, and the stage of your bankruptcy. They might ask you for proof during the application, showing that you can actually pay back the loan.

Loan Approval and Disbursement Procedure

If your application is approved, your lender will determine your repayment schedule and interest rate. These loans tend to have additional rules and stipulations for bankrupt individuals, and it’s possible that your approved loan will come with collateral, or require you to find a guarantor. You must also be sure to stay on top of the conditions franked upon you by the lender to prevent any further ramifications.

Interest Rates and Loan Repayment for Bankrupt Individuals

One significant aspect that bankrupt people should keep in mind is the loan interest rate. Interest rates for loans to bankrupts are typically higher than for normal loans because of the higher risk involved for lenders. However, these rates can have a variety of terms depending on the loan term & maturity & based on the amount of the loan borrowed, as well as the lender’s risk assessment.

What affects the interest rate?

When lending to bankrupts this price for the use of money will depend on: (a) how readily the loan can be repaid; the more risky the non-payment of the sum, the higher the interest; (b) the time of repayment; the longer the term, the less the interest; though the eventual total for which the money is repaid will be larger; (c) the total of the bills that are discounted or supported; the greater the loan, the greater must be the interest.

Risks and Responsibilities of Lenders

A person who is bankrupt is a greater risk for lenders than someone who is not so. Borrowers who carry the bankruptcy mark may have various other financial problems, and have a higher chance of failing to make repayment when the time arises. So lenders should make an effort to tabulate those hardships before giving loans to the bankrupts. At times lenders may require a guarantor or collateral to protect against possible losses.

Alternatives and Preventive Steps for Those Who Are Bankrupt

Here is what the bankrupt can do to avoid a serious financial mess in the future:

1. Be Prudent With Your Money

One of the most important things to do is to plan your finances. Budget on a monthly basis, make sure you do not overspend, and credit is a privilege which should be learned to be prudent and wise in managing it. Employ the services of the Credit Counselling and Debt Management Agency (AKPK) or consult a financial consultant on how to manage your finances better.

2. Improve Your Credit Score

Even if you have been pronounced bankrupt, you can still improve your credit rating by paying debts on time. Being included in a debt management program or settling with creditors can help improve your financial status and qualify yourself next time for loans.

3. Use Microloans or Alternatives

If you need a small loan and can’t get one from a bank, consider instant loans or alternatives. These loans, usually available from non-bank financial companies, offer the option of a small loan, but be aware of what you are doing!

Conclusion

Even though the ways in which lenders loan their money to bankrupts can be confusing and worrisome, with just a wee bit of good sense and smart movement we can always find our way out. Ask financial consultants and adhere to sound practices, never take bad debt.

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