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INSTALATION PLANS CAUSING POOR MALAYSIANS TO PAY MORE?

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While lower income households may have televisions, refrigerators and cars, such ownership does not indicate prosperity but debt, as families pay more than the value of these goods through hire purchase plans with high interest rates.
Giving an on-the-ground picture of whether Malaysians are truly benefiting from economic policies, a Khazanah Research Institute report on "The State of Households" released yesterday showed inequality in many areas, including the fact that the rich pay less for the same items because they can afford to pay in cash.
Poorer Malaysians who rely on instalment plans to purchase goods are paying more than their wealthier counterparts for the same items, due to the high interest rates, the report stated.
This “ansuran mudah" scourge has caused Malaysians to spend most of their income, have little savings, and become more susceptible to price increases, the institute noted.
The report said that consumers who opt for installment payment offers could pay up to 50% in annual percentage rate (APR) for products, such as televisions, washing machines and fridges.
  • “The wealthiest pay by cash, the better-off choose credit based on interest rates and the least well-off choose the installment payments offer that they can afford,” it said.
  • “Low-income households, who have low financial literacy and limited access to debt, appear to choose financing based on the affordability of the monthly or weekly installments rather than the true APR.”
  • The report revealed that a RM24,936 Perodua Viva at an interest rate of 3.38% for nine years may cost only RM271 a month.

However, consumers would be paying RM6,827 in interest, or 27.38% of the total price, at an APR of 6.14%.
“With a nine-year loan, the Perodua Viva seems affordable at RM271 per month. But the reality is that the buyer pays more than a quarter of the purchase price in interest payments,” said the report.
“The problem is more acute with consumer durables, as the rates are almost 50%.”
The report said that households earning less than RM3,000 have a relatively low share of total household debt but their borrowings are proportionately higher than the rest, at seven times their annual income.


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