MEANING OF CREDIT AND DEBT

CREDIT Debt
A contractual agreement An amount of money that
between supplier and the has been borrowed but has
consumer. not been settled.
The consumer can borrow
money from the supplier for any
use or purchase and agree to If a transaction is made using
repay within a certain period. a credit card, the credit will
be converted into debt.
Credit is a postponement of
payment facility provided by the
supplier to the consumer.
 Personal Budget
 the estimated income and expenditure of an individual for a
given period.
The practice of making personal budget is strongly
encouraged so that an individual can
 plan spending prudently
Avoid overspending
Save
 How to manage credit and debt wisely???

 Credit card users need to settle the debt payment within the
period stipulated by the bank to enjoy interest free period.
Pay the outstanding balance listed on the credit card statement.
The minimum amount paid by the credit card holder provides
opportunity for the bank to charge interest on the balance and
may also incur late payment charges.
Pay within the cash discount period for payment of debts.
 Example 1
Encik Syed bought an air conditioner at RM 3 200 on 15 July 2018.
He lacked RM 1 200 in cash but has a Bank Cemerlang credit card.
He was aware that the shortage of cash could be paid at the end of
the month when he received his salary.
SOLUTION:
a) Encik Syed can use the credit card facility.
b) The use of credit cards is more convenient if Encik Syed repays
his credit within the interest free period to avoid any extra
charges.
Advantages and disadvantages of credit card.
• Credit cardholders can enjoy a reward
system in the form of cash rebate or point
redemption.
Advantages • Does not require us to carry a lot of cash.
• Easy and efficient payment method.
• Convenience of buying goods and services
online.

• Incur charges such as annual fees, finance

charges (interest), cash advance interest
Disadvantages charges and late payment charges.
• Overspending.
• Some stores do not accept credit payment.
 21 years old and above
Minimum income of RM 24 000 per annum and meets other requirement set
by the bank.
Requires salary slip or supporting documents.
For cardholder earning RM 36 000 per year or less:
 cardholders can only have credit cards from two card issuers only.
 The maximum credit limit given to the cardholder should not exceed twice
the cardholder’s monthly income per issuer.
Credit card users must comply with the obligations as a credit
card user when signing the credit card application form.

Do not give credit card details to strangers

Remember the pin number

Do not record the pin number on the back of the card.

Check the transactions in the credit card statement received at

the end of the month.
 Reward system
All credit card issuers offer various rewards for their credit
cards. Every spending made entitles cardholders to collect
reward points.
 consumers will earn one point for every ringgit spent.
Some issuers give more points for expenses spent oversea.
 Consumers with certain numbers of accumulated points can
redeem gifts or services that are provided for free,
Other rewards given are cash return for transactions made at
petrol stations and discounts on purchase of goods or
services.
Participation fees
New card fees Advance cash fees
and annual fees.

Oversea
Interest rate Late payment
transaction
charges charges
charges.
 participation fees and annual fees.
 most of credit card issuers have exempted these charges, which means they
no longer charge participation and annual fee.
 New card fees
 charges will apply to any new card application due to loss, theft or damaged
card.
 Advance cash fees
 credit card also can be used to obtain cash advances. However, the cash
withdrawal will be charged which is 18% per annum or 1.5% per month of
the balance amount of cash advances which calculated based on the
number of days.
Interest rate charges
 this charge will only be incurred if there is any payment outstanding within
fixed period.
 late payment charges
 it is a penalty for failing to settle the payment within the fixed period. 1%
will be charged against the outstanding balance.
Oversea transation charges
 Incurred when the credit cardholders buy goods in oversea or the
transaction is processed by foreign banks.
 Payment of Credit Card
 the credit card issuer will provide cardholders with a monthly account statement
showing the total purchase of good and services, fee and charges incurred by
the card holder.
 The records in the cardholder’s credit card account as seen on the statement of
the monthly account shall be deemed to be correct and binding on the
cardholder provided it is disputed by the cardholder.
 Payment can be made at related card issuer branches or online via websites and
apps on a smartphone.
 Any payment made before the due date will not incur additional charges.
Payment without charges is usually fixed within the period of 20 days.
 the card issuers also offer minimum payment of a credit card. The minimum
payment fixed is 5% of the total new balance or RM 50, whichever is higher.
 Paid within the fixed No charges incurred.
period

Only made minimum Interest rate is charged on

payment and the latest
Balance of card balance is below
card the maximum credit limit.
(spending)
Only made minimum
payment but the latest
card balance has already
exceeded the maximum
credit limit
the balance (after
subtracting the minimum
payment) until the full
payment is made.
Total excess amount of credit limit
+ interest rate charged on the
balance ( after subtracting the
minimum payment) until the full
payment is made.

Interest rate charged on the balance +

Failed to make late payment charges + total excess credit
payment limit until the full payment is made. If the
cardholder still fails to make payments,
legal action will be taken.
Interest rate charged depends on the payment
record:
a) 1.25% monthly or 15% yearly for those who make
payments without being late for 12 months
continuously.
b) 1.42% monthly or 17% yearly for those who make
payments without being late for 10 – 12 months
within 12 months.
c) 1.5% monthly or 18% yearly for those who are
not in the above categories.
 Example 2
Encik Ahmad received his credit card statement for January 2019 from Bank
Sentosa. The statement shows that Encik Ahmad has a current amount ( outstanding
balance) of RM 5 200. It is assumed that Encik Ahmad did not use his credit card in
February.
a) What is the minimum payment to be paid?
b) If he only makes a minimum payment for January and the statement date is 15
days from the expiry date of the interest free period, what is the balance shown
in this February statement?
c) If he missed his payment for January, what is the balance shown in his February
statement?

Solution :
a) Current amount = RM 5 200
5
5% of the current amount = × RM 5 200 = RM 260
100
This amount exceeds RM 50, thus the minimum payment to be paid by
Encik Ahmad is RM 260.
b)
Outstanding balance = RM 5 200 – RM 260 = RM 4 940
Period subject to financial charges =15 days = (15 ÷ 365) year
Interest charged = RM4940 × 18 ÷ 100 × (15 ÷ 365) = RM 36.54
Current amount (outstanding balance) in February
= RM 4940 + RM 36.54
= RM 4 976.54

c)
Outstanding balance = RM 5 200
Period subject to financial charges = 15 days = 15 ÷ 365 year
Interest charged = RM 5200 × 18 ÷ 100 × 15 ÷ 365 = RM 38.47
1
Late payment charges = × RM5 200 + RM 38.47 = RM 52.38
100
Current amount in February = RM 5200 + RM 38.47 + RM52.38
= RM 5 290.85
 Example 3
Calculate the minimum payment of credit card with the following balances.
a) RM 75
b) RM 860

SOLUTION:
a) Minimum payment = 5% × 75
= 3.75
However, the minimum payment that has been fixed is RM 25. Hence,
the minimum payment that has to be made is RM 25.

b) Minimum payment = 5% × 860

= 43
Hence, the minimum payment that has to be made is RM 43.
 Example 4
Haizi has outstanding credit card balance of RM 580. She has only made a minimum payment this month.
How much does she have to pay in the following month if she has just used the credit card?

SOLUTION:
Minimum payment Outstanding balance
= 5% × 580 = 580 − 29
= 0.05 × 580 = 551
= 29

Interest on balance
18% × outstanding balance
=
12
0.18 × 551
=
12
= 8.27

∴ payment for the following month

= 551 + 8.27
= RM 559.27
 Example 5
Sam bought a home appliance that costs RM 1 990 using credit card. Due to
financial problems, he could not settle any payments during the period
without any charges. Calculate the amount of credit card payment in the
following month, given that Sam has good payment records for 12 months
continuously.
SOLUTION:
Late payment charges Interests on balance
15%×1 990
=1% × 1990 =
12
= 19.90 = 24.88

∴payment for the following month

= 1 990 + 19.90 + 24.88
= RM 2 034.78
 Example 6
Mr. Lai brought his family to Universal Studios in Singapore during school
holidays. He paid the entrance ticket by using a credit card. The currency
exchange rate at that time was SGD1 = RM 2.95 and the interest rate charged
on the credit card was 3.9%. If the price of the tickets was SGD264, calculate
the amount payable by Mr. Lai in Ringgit Malaysia.

Solution:
Total interest charges on credit card
= SGD 264 × 0.039 × 2.95
= RM 30.37

Total amount
= SGD 264 × 2.95 + 30.37
= RM 809.17
 Example 7
Ms Chin wants to buy a French made handbag online. She surfs the internet and
finds two interesting promotions:

a) Company L in Singapore offers promotional price of SGD250. For orders outside

Singapore, SGD50 shipping charges apply.
b) Company V in Malaysia offers promotional price RM 799. Delivery is free for all
orders to local addresses.
Ms Chin intends to make payment by credit card and she understand that the bank
will change an additional 1% on each transaction from abroad. Assume the current
exchange rate for Malaysian ringgit is RM 1 = SGD0.34
As a wise consumer, which offer should Ms Chin choose ? Justify your choice.
 Solution:
Company L
Promotional Price = SGD250 × 1 ÷ 0.34 = RM 735.29
Postal charges = SGD50 × 1 ÷ 0.34 = RM 147.06

1
Additional charges by bank = RM735.29 × = RM7.35
100
Actual price to be paid = 735.29 + 147.06 + 7.35
= RM 889.70

Company V:
Promotional price = RM 799
Actual price to be paid = RM 799

Although the promotional price offered by Company L is cheaper but the actual price payable
is higher due to the additional charges incurred for online purchases from Company . So, Ms
Chin should buy from company V to save RM 90.70.
 Guidelines in using a credit card wisely
 Choose only one suitable credit card.
Use it only when necessary and not for entertainment
Make payments in the fixed period on time to avoid incurring additional charges.
 make minimum payment if there are financial constraint to make full payment.
But try to make the full payment as soon as possible.
Avoid using credit card until maximum credit limit.
Make a record of every spending done. Then, check against the bank statements
to avoid incorrect charges.
Do not share any related information or security pin number of the card with
anyone.
For online payments, use credit cards on trusted websites only. Make sure the
web address starts with http://
Immediately report to card issuers in the event of loss or theft of credit card.
 Loan Repayment and Instalment
Total loan balance is the amount deducted from the initial down
payment plus the amount of interest charged.
The monthly instalment is the total amount paid by the borrower to the
bank every month to settle the balance of the loan.
 flat interest method, the interest rate will be calculated on the original
loan amount over the term of the loan. So, the amount of interest
charged per month is fixed.
Formula to calculate loan payment:

𝐋𝐨𝐚𝐧 𝐏𝐚𝐲𝐦𝐞𝐧𝐭, 𝐀 = 𝐏 + 𝐏𝐫𝐭

Where,
A = total payment amount
P = principal
r = annual rate
t = Time (in years)
 Example 8
Mrs Lim bought a car worth RM 80 000 on credit. She pays 10% down
payment and the balance is payable in instalments over 6 years. The
flat interest rate imposed by the bank is 4% per annum. What is the
amount of repayment and monthly instalment payable by Mrs Lim?
Solution:
Loan amount = purchase price − downpayment
= RM 80000 − RM 8000
= RM 72000
4
Interest for 6 years = RM 72000 × × 6 = RM 17280
100
Total repayment = RM 72000 + RM 17280 = RM 89 280
RM 89280
Monthly Instalment = = RM 1 240 per month
12×6
 Example 9
Encik Azlan obtained a personal loan of RM 10 000 FROM Bank Mulia with an
interet rate of 4% per annum. The repayment period is 7 years. What is the
monthly instalment to be paid by Encik Azlan?
Solution:
4
P = RM 10000 , r = ,t=7
100
A = P + Prt
4
= RM 10 000 + RM 10 000 × ×7
100
= RM 12 800

RM 12 800
Monthly Instalment = = RM 152.38
7×12
 Example 10
Calculate the loan repayment amount for each of the following.
a) RM 6 325 borrowed for 3 years 5 months at a 3.2% interest rate per
annum.
b) RM 37 920 borrowed for 1 year 2 months t a 4.8% interest rate per
annum.
Solution:
a) A = P + Prt
3.2 41
= 6 325 + 6 325 × × months
100 12
= RM 7 016.53

b) A = P + Prt
4.8 14
= 37 920 + 37 920 × × months
100 12
= RM 40 043.52
 Example 11
David wants to buy a car that cost RM 67 500 by taking loan from a bank.
The interest rate charged is 3.1% per annum. Calculate the total loan
repayment amount if he wants to borrow the loan for
a) 5 years b) 7 years
Solution:
a) A = P + Prt
= 67 500 + 67500 × 0.031 × 5
= 67 500 + 10 462.50
= RM 77 962.50
77 962.50
Monthly instalment = = RM 1 299.38
5 × 12

b) A = P + Prt
= 67 500 + 67500 × 0.031 × 7
= 67 500 + 14 647.50
= RM 82 147.50
82 147.50
Monthly instalment = = RM 9 77.95
7 × 12
 Example 12
Ganesh bought a television that costs RM 3 200 through an instalment plan. He
paid RM 500 as the deposit and the balance by instalment for 6 months. If the
interest rate charged is 5% per annum, calculate his loan repayment amount
every month.
Solution:
balance to be paid = 3200 – 500
= 2 700
6
Total loan repayment = 2700 + 2700 × 0.05 ×
12
= 2 700 + 67.50
= RM 2 767.50

2 767.50
Monthly instalment =
6
= RM 461.25
 Example 13
Encik Harith obtained a personal loan of RM 10 000 from Bank Mulia
with an interest rate of 6% on the balance. The repayment period is 7
years while the monthly instalment is RM 150. calculate the total
amount of interet payable by Encik Harith for the first three months.

Solution:
First Month
6 1
First month interest = 10000 × ×
100 12
= 50
Loan at the end of first month = 10 000 + 50
= 10 050
Balance after first instalment = 10 050 – 150
= RM 9 900
SECOND MONTH
Balance of the loan at the beginning of second month = RM 9 900
6 1
Second month interest = 9 900 × 100 × 12
= 49.50
Loan at the end of second month = 9 900 + 49.50
= 9 949.50
Balance after second instalment = 9949.50 – 150
= RM 9 799.50

THIRD MONTH
Balance of the loan at the beginning of second month = RM 9 799.50
6 1
Second month interest = 9 799.50 × 100 × 12
= 49.00
Loan at the end of second month = 9 799.50 + 49.00
= 9 848.50
Balance after second instalment = 9 848.50 – 150
= RM 9 698.50
Total interest for the first three month
= 50 + 49 + 49.50
= RM 148.50
 Example 14
Ameera wants to buy a car and has paid deposit of RM 4 800. The balance will be settled
through a vehicle loan.

State the advantages and disadvantaged of the vehicle loan chosen by Ameera.
Solution:

• Repayment of vehicle loan in monthly instalments

allow Ameera to own the car.
Advantages • Does not require a lump sum payment.

• The car will be repossessed if instalment are not

made.
Disadvantages • The total amount of repayment is high due to
interest charged on the loan.
 Example 15
Mr Vincent is a teacher with a monthly income of RM 2 800. He decides to
buy a new car to commute to work. He contacts two bank to get a loan of
RM 40 000. In addition, he needs RM 1 500 to cover other expenses every
month.
The following are loan packages offered by two banks to Mr Vincent.

Loan details Bank A Bank B

Loan amount RM 40 000 RM 40 000
Payment period 9 years 6 years
Interest rate 4.5% 5%
guarantor Not required required
Suggest to Mr. Vincent which bank is better suited for his car loan. State your
answer.
 Solution:
BANK A BANK B
A = P + Prt A = P + Prt
A A
4.5 5
= 40 000 + 40 000 × ×9 = 40 000 + 40 000 × ×6
100 100
Total money repaid Total money repaid
= 40 000 + 16 200 = 40 000 + 12 000
= 56 200 = 52 000
Monthly instalment Monthly instalment
56 200 52 000
= =
9 × 12 5 × 12
= RM 520.37 = RM 722.22

• Mr. Vincent should choose Bank A because the monthly instalment for Bank A is
lower and less burdensome to him.
• Mr Vincent could also choose Bank B as the total interest paid will be less
compared Bank A.