Credit card scenario in Malaysia
The credit card business is one of the most lucrative business segments for bankers. Banks make money from charging interest from outstanding balances of credit card owners at a high rate of 18% per annum, about 3 times its base lending rate and about 6 times the cost of its capital. Of course the banks takes the risk of bad debts and unsettled amounts because of the non-collateral nature of this business, but the banks calls a bluff by charging interest on credit card owners who strive to maintain their personal creditworthiness and integrity as a borrowers.
Above: Credit cards in circulation- more than 10 million. High double-digit growth rate.
Above: A RM25 billion industry.
As at August 2008, the credit card business is made up of 9.4 million and 1.2 million principal card and supplementary card holders; and a total of RM24.1 billion being owing by these card holders. Of the RM24.1 billion, RM21.8 billion are current balances (amount owing within the month) leaving the remainder of RM2.3 billion owing more than one month (unpaid by credit card holders). Of the RM2.3 billion, RM48.4 million is being owed for more than six months. It is from the late payers' RM2.3 billion the banks make the most money from, because of the charges levied on the credit card holder:
-Late payment penalty (if the credit card holder makes payment after the stipulated payment date) ie normally ranging from RM10 upwards.
-Interest on late payment- ranging from 15% to 18% on the amount owing. If you have been a good paymaster and paying your credit card bill on time for the last 12 consecutive months, but fail to settle fully your balance on the 13th month, the interest rate charged will be 15% (new Bank Negara ruling on 26 June 2007). If you have not been paying your balance on time, say only on time for less than 9 months out of the past 12 months, the interest rate will be the usual 18%.
-Interest on the the 20 day period- interest will be charged from the date of transaction if all retail transactions (excluding cash advance, balance transfer and instalment payment plan programmes) of the previous month are fully not paid by the payment due date (new Bank Negara ruling again).
Above: The impact of the 26 June 2007 Bank Negara ruling has greatly reduced the balances exceeding 6 months old (circled area).
The Bank Negara ruling issued on the 26th June 2007 has greatly reduced old credit card balances (particularly exceeding 6 months old):
Credit balances >6 months old
July 2007 RM268 million
August 2007 RM85 million (greatly reduced from the previous month)
Some financial advice
The drop most likely meant those belonging in the statistics population in the graph above either stole or borrowed to reduce their credit card debt. I think you should do the same too, if you have been holding on to a credit card debt more than twice your monthly salary for more than 3 months.
It's time to face the fact that settling the entire amount is just impossible without sacrificing an arm and a leg. Moving into 2009, it's best to take up a soft loan or a medium-term loan from a bank to fully pay off that credit card debt. Medium-term loans are comparatively cheaper than the credit card interest (15% to 18% per annum). Below are some examples:
Anytime Money- 9.5% p.a.
CashVantage Personal Financing-i- 8.99% p.a.
FlexiCash Term Loan- BLR + 6.10% p.a.
Personal Loan- 12% p.a.
Quick Cash EDGETM Classic- 15% p.a. upwards
Personal Financing- 6.49% to 13.49% p.a. depending on amount
The interest rates above are dependant on loan tenure and amount. Loan approval is subject to several qualifying factors as well.
When applying for a personal loan- there is sometimes room for negotiating a lower interest rate but of course depends a lot on your credit history. Whatever it is, don't go into 2009 with a credit card debt!