Economists: Malaysians should avoid high interest debts
SHAH ALAM - Malaysians should analyse their financial expenditure to avoid financial burden and in order to lead a stable life.
Universiti Putra Malaysia (UPM) School of Business and Economic senior lecturer Dr Soh Wei Ni said people should avoid relying on high interest debt and instead focus on income security and establish an emergency fund.
Soh said the rising cost of industrial inputs and fuel costs were the main causes of the trend of high inflation rates, which was certainly a global issue.
She said Bank Negara Malaysia (BNM) raised the Overnight Policy Rate (OPR) in response to rising inflation and this seemed to have a direct influence on the Base Lending Rate (BLR) which had an impact on RM1.17 trillion household loans.
"Most Malaysians use borrowed money to buy assets like vehicles and real estate, and the fixed rate and variable rate loans change greatly based on BNM's monetary policy.
"For instance, a borrower would be required to make monthly payments of RM2,013 for a 30-year loan with the previous interest rate of 2.8 per cent.
"The 25bps OPR rise will result in a roughly 3.1 percent increase in monthly payments to RM2,079, or an additional RM66 per month.
"Consequently, the borrower's annual expenditure will rise by RM792," she told Sinar Daily.
In this case, Soh advised Malaysians to avoid depending on high interest debt like credit cards and personal loans.
She also encouraged people to establish an emergency fund and limit the spending in order to make it through the recession and interest rate increase.
Meanwhile Universiti Malaysia Sabah (UMS) Financial Economics senior lecturer Ribed Viannece said buying homes, vehicles and taking up personal loans were a smart option, but this applied to those who were financially stable.
"Taking out a loan during times of economic instability can be a smart option, but only for those who are financially stable and can pay the current rates.
"During an economic crisis, there is still a lot of risks, especially with the potential of widespread layoffs.
"Waiting it out may be the better option if your finances are less than ideal," she said.
Viannece also said a fixed rate is the greatest option for those who desire consistency because it does not change over time especially in times of economic turmoil.
She also urged the government to invest in family support as it may assist the economy by filling job vacancies and prepare children for jobs in the future.
