By now, you’ve probably already heard of the moratorium on loan repayments announced by the government. From 1st April 2020 onwards, all banks will be offering postponement on loan and financing repayments over the coming 6 months.
In other words, you won’t need to make your monthly loan repayments anymore till the end of September this year. This is already taking place on an automatic basis, though you also have the choice to opt-out and make your repayments as usual by contacting your respective bank.
While this may come as a relief, it also brings with it many question:
- Does the same apply for credit card bills?
- Will interest still be charged as usual?
- How about PTPTN?
Bank Negara Malaysia (BNM) has stated that all licensed banks and other financial institutions regulated by BNM are listed to provide this temporary financial relief. The establishment of a 6-month loan moratorium aims to provide some relief to individuals and businesses who face temporary financial constraints during this challenging period.
Update on moratorium for hire purchase loans and Islamic financing
As previously announced by BNM on April 30, interest/profit will continue to accrue on deferred payments during the moratorium period for hire purchase loans and fixed rate Islamic financing. The deferment package offered is meant to ease cash flows for those who are affected by the COVID-19 pandemic.
However, there is good news to borrowers! On May 6, The Ministry of Finance Malaysia has confirmed that hire purchase loans are now interest and compound free, including fixed rate Islamic financing. In other words, there will be no interest accrued and additional charges imposed throughout the 6-month moratorium period.
This means that starting in October, borrowers must resume their loan repayments as usual based on the terms of agreement with their respective banks. For more info, you may refer to your respective bank.
Check out our updated infographic below that digs down into how some of the different types of financing are affected:
Should you opt in or opt out of the loan deferment?
BNM’s deferment package is beneficial for individuals and businesses who are registered to any form of loans or financing plans. Only those eligible are recommended to proceed with the deferment as it can be a good measure to survive through this pandemic.
If you can afford to pay off your loan, you can save some money instead of having to spend more on deferred payment plans. If you’re still figuring out your decision, there are three possible options available, you can either:
1. Opt out and pay your monthly instalment
You will continue paying your monthly instalment as usual throughout the moratorium period. No additional interest payments will be charged.
2. Opt in and extend your loan tenure by 6 months
You can postpone the loan payback until September and extend your loan tenure for 6 months. This can be considered the best option if you’re currently controlling the flow of your money. You will need to start doing your monthly repayments as usual starting in October. Your monthly instalment will be the same till the end of your tenure.
Best example to illustrate this option: If you’re paying RM900 per month for your existing car loan, due to end by June 2021, you will continue to pay the same amount which is RM900 per month from October 2020 onwards until the end of your tenure, which has now been extended by 6 months to December 2021.
3. Opt in and pay the total deferred instalments, no extension on loan
You will not make any loan payments for 6 months, but once the moratorium is lifted, you have to pay the total deferred instalments including interest in one lump sum in October. The best part is that your loan tenure will not be extended.
Your option totally depends on the condition of your finances. You also have to take note that the options offered may differ from bank to bank, therefore you should contact your bank to discuss what is best for you.
If you did not opt out of the deferment earlier in April and wish to opt out now, banks will not impose any late payment charges. Your bank will provide you with a time frame to pay off the deferred instalments starting from April 1, 2020.
FULL INFOGRAPHIC TEXT:
What does “moratorium” mean?
A moratorium is a time period in which payback on loans can be suspended.
The government introduces loan moratorium as a relief for those who face temporary financial constraints due to the current pandemic.
How does moratorium work?
- Automatic moratorium, no need to aply
- Valid from April 1 - September 30, 2020 (6 months)
- No late payment charges
- Credit score will not be affected
What type of interest/profit rate applies?
|Home Loan||Hire Purchase Loan||Personal Loan||PTPTN|
|Reducing Balance Rate||Flat Rate||Flat Rate||Flat Rate / Reducing Balance Rate|
Flat rate vs reducing balance rate
Flat rate: Flat rate interest/profit is charged based on the principal amount, which is the total initial sum borrowed. This is common for hire purchase, personal loans including Islamic financing. With flat rates, you pay a fixed amount of interest every month for the entire tenure - even though you’re consistently chipping away at your debt.
Reducing balance rate: Reducing balance rate interest is charged based on your outstanding balance only. This is typically used for home loans and credit cards. With reducing balance rates, the amount of interest you pay gets smaller and smaller every month because you’re slowly paying it off. Hence, you pay less interest overall compared to flat rates.
How to calculate the interest rate?
Flat rate: (Original loan amount x number of years x interest rate per annum) ÷ Number of instalments = The amount of interest you pay per instalment
Reducing balance rate: Interest rate per annum x Outstanding loan amount = The amount of interest you pay per Instalment
How does the moratorium affect mortgage home loans?
Interest for home loans (mortgages) is based on the reducing balance rate. This means that the interest you pay every month is based on the remaining balance from the previous month.
Interest will continue to pile up over this 6-month deferment period. Even though you don’t need to make your monthly repayments, you’ll still have to pay the interest accumulated over these 6 months in October. Therefore, your monthly instalment and total interest cost will increase after deferment. There will be no extension of tenure for home loan.
How does the moratorium affect hire purchase loans?
Interest will not accrue on deferred payments during the 6-month moratorium period. Hence, if you decide to opt-in to the moratorium and extend your loan tenure, there will be no additional charges imposed. The instalment payment will remain the same based on the term agreements you made with your bank.
Your loan tenure will only be the same if you pay the total deferred instalments in one lump sum in October.
How does the moratorium affect personal loans and Islamic financing?
Interest will not accrue during the 6-month deferment period for conventional personal loans. No additional interest will be charged to borrowers. Same goes to fixed rate Islamic financing, banks will not impose any additional profits and charges.
How does the moratorium affect your PTPTN repayment?
If you’re a PTPTN borrower, you’re either paying 3% interest on a reducing balance basis or 1% Ujrah on a flat rate basis.
All borrowers will automatically be given a delay in loan repayments until September 30, excluding borrowers who have already been in arrears prior to this. Admin and Ujrah fees are incurred during the moratorium period.
Moratorium loan eligibility requirements
- The moratorium is applicable to all loans/financing denominated in Malaysian Ringgit
- Must not in arrears for more than 90 days as of 1 April 2020
Does moratorium cover credit card payments?
Answer: Moratorium does not apply to credit cards. However, credit card balances can be converted into a term loan of up to 3 years of not more than 13% per annum.
How: Your unpaid balances will be converted into 36 monthly instalments of a lower interest rate, and you must pay the instalment in full every month once the deferment period ends. Accrual of interest still applies.
Eligibility: All cardholders regardless of their income level are eligible to participate in this conversion package any time from April 1 – December 31, 2020. Your account should not be in arrears for more than 90 days as of April 1, 2020.