Personal loans main cause of civil servant bankruptcies

SHAH ALAM - Personal loans have become the highest contributor to new bankruptcy cases registered between 2021 and 2024 involving civil servants.

Consumer Finance expert Professor Dr Mohamad Fazli Sabri said based on data presented by the Malaysian Department of Insolvency (MdI), 49.53 per cent of bankruptcies were due to personal loans.

"Typically, individuals take out loans to settle existing debts, pay household expenses and repair vehicles.

"On the other hand, some are influenced by investment schemes. They take loans to invest and aim to increase their income, but the opposite happens," he said when contacted by Sinar.

Fazli who is also the Dean of the Faculty of Human Ecology at Universiti Putra Malaysia said that more people were caught up in the "buy now, pay later" concept when shopping.

This, he said caused individuals to spend beyond their means, eventually forcing them to take loans to pay off debts.

Fazli said the lack of knowledge in financial literacy, particularly related to debt and loans, often led people to fall into such problems.

"Employers need to introduce or implement intervention programmes related to financial education in the workplace. Invite hosts or advisors who are experts in finance and related fields.

"We must make financial education a lifelong learning process. Moreover, with the salary increase for civil servants in December, we are concerned that this issue will worsen if early awareness is not raised," he said.

He said the impact of bankruptcy was not only felt by individuals but it also affected workplace productivity.

Those burdened by debt, he said may experience reduced motivation and focus at work.

"This could lead to a domino effect on government institutions, as declining economic performance will negatively impact the country's finances.

"Therefore, all parties involved must take proactive steps to address this issue, including strengthening financial education programmes and encouraging better financial management practices among Malaysians," he added.

Here are nine reasons why people take out personal loans:

1. Emergency Savings

For example, to cover unexpected medical bills or repair a car that suddenly breaks down.

2. Debt Consolidation

This technique involves consolidating various debts, including credit card debt into a single personal loan account with a lower interest rate and monthly payment.

3. Buying a Vehicle

This is especially when purchasing an older car that doesn’t have financing options available. Personal loans for buying motorcycles are also often cheaper compared to dealer loans.

4. Business

To start a business, applicants may not qualify for business loans from National Entrepreneurial Group Economic Fund (Tekun), Majlis Amanah Rakyat (Mara) or banks.

5. Education

This is due to the rising cost of higher education and as an investment for the future.

6. Home Loan Deposit

Although some options offer zero deposit purchases, there are limitations such as higher interest rates.

7. Wedding

This is particularly for couples who want a grand and elaborate ceremony.

8. Home Renovation

Renovating a home requires a large budget, especially with rising construction material costs.

9. Vacation

Another way to fulfil the dream of exploring the world is by enjoying a vacation with instalment payments.