Following the uproar when it was announced by Bank Negara Malaysia and the Association of Banks Malaysia that the 6-month moratorium offered on loans, including Hire-Purchase loans, would incur interest for the 6 months, the Finance Ministry has today said that there will be no interest charged.
Prior to this, the financial institutions had said that borrowers will have the option of settling the 5 months deferred instalments in October in one lump sum and not pay any interest, or interest for each month would be added for those who did not settle in full. This meant that the amount for the remaining instalments would be increased and the repayment term would extend a further 6 months (incorporating the deferred months). This applied to both conventional and Shariah H-P loans.
The charging on additional interest was seen as being unfair, more so at a time when many people are facing financial challenges in view of the impact of the pandemic on businesses. Allowing a 6-month deferment in paying instalments was a welcome move as it would allow them some time to recover and try to stabilize their situation, but to charge them additional interest was only adding extra financial burden.
After a discussion between the Finance Ministry and the banks, it was agreed that no interest will be charged or compounded, and therefore the amount owing would not change. In other words, whatever instalment amount has been paid will be maintained and the only difference will be that the repayment term will continue for 6 months after the original month it was supposed to end.
The amount you agreed for your H-P loan plus the interest at the time of purchase will be all you have to repay, with no additional interest being charged.
Borrowers have the option of accepting the 6-month deferment or they can opt out. In either case, they need to inform their banks of their decision.
Just as many Malaysians can feel some relief that the severity of the COVID-19 pandemic seems to be diminishing, Bank Negara Malaysia (BNM) and the Association of Banks Malaysia (ABM) have dampened the optimism with the announcement that there will be additional interest charges for what was to be a 6-month moratorium on loans.
This is a u-turn from what we were told on March 25. Back then, it seemed that, understanding the burden on many people during this period, BNM directed all banks to automatically allow a 6-month moratorium on loans from April 1, 2020. That meant instalments for the months of April, May, June, July, August and September 2020 need not be paid as scheduled. No application was needed as the deferment would be automatic (unless the customer did not wish to accept it) and interest/late penalty charges would not be incurred.
The move was welcome because many people have faced financial challenges since the Movement Control Order (MCO) started and their incomes have been disrupted. Therefore being able to defer their loan repayments at least gave them some breathing space.
The total amount of the H-P loan and the interest to be charged for the entire period of the loan will have been agreed upon at the time of purchase. Now, if you decide to defer instalments for 6 months, you will be charged additional interest.
With the change which comes into effect from May 1, customers will not have an interest-free payment holiday from April to September 2020. Also important to note is that the banks now say that deferment will no longer be automatic H-P loans. Customers will be informed of the change and asked to confirm whether they want the deferment with the additional interest, or opt out and continue paying.
There is no penalty for opting out from May 2020. All the customer needs to do is inform the bank that payment of instalments will resume as scheduled in the agreement. BNM expects the banking institutions to allow borrowers ‘reasonable time’ to regularise any outstanding scheduled payments that were earlier deferred under the moratorium.
“BNM requires banking institutions to take appropriate steps to ensure that borrowers/customers are provided with clear information on the process and changes to the terms of their agreements, as well as convenient means to conclude these agreements in view of the movement control order.,” said a statement from BNM.
The ABM’s statement said borrowers will have two options at the end of the moratorium. The first is to pay the accumulated 6 months’ deferred instalments together with their October 2020 instalment and no additional interest will be charged. That’s going to be very tough for most people to pay 7 months of instalments at one go.
The second option is to continue the repayment of instalments post-October 2020 through an extension of 6 months in the repayment period after the original date the loan repayment period ends. In this case, interest based on the contractual rate will be charged on the amount of the deferred instalments that remains outstanding until these instalments are fully repaid, which should be by the end of the extended 6-month tenure.
The additional interest will be spread out over the monthly instalments from October 2020 which may not be too bad if you have a few more years left to your loan. It is an unusual approach since H-P loans have a fixed amount of interest for the entire period.
The banks are already notifying customers tonight via SMS or e-mail (or registered postal mail) and if you do not get any notification, check their website or visit the branch managing your H-P loan for clarification. Banks are essential services so they are open even during the MCO.
These are tough times for everyone and conserving cash and savings is important because we don’t know how long this situation will continue. In a normal recession, there comes a time when it ends and the economy slowly picks up again but this time, this is not something to do with the economy. It’s a pandemic which has to be fought like a war and hopefully, mankind will win and defeat the enemy.
For those who have hire-purchase loans from banks for their vehicles, you would normally have to continue paying the monthly instalments. So a portion of the money you are trying to save for essentials still has to be set aside to meet this commitment, otherwise your vehicle gets repossessed.
Understanding the burden on many people, Bank Negara Malaysia (BNM) has directed all banks to automatically allow a 6-month moratorium on loans (ringgit-denominated) being serviced by individuals and SMEs (Small & Medium Enterprises) from April 1, 2020. This means that instalments for the months of April, May, June, July, August and September 2020 need not be paid as scheduled.
It does not mean that you get the 6 months deducted as you will have to resume paying from October onwards and your repayment period will end 6 months later than the original ending month.
You will not be charged any penalty for late payment during the 6 months but according to a BNM FAQ, the interest for the monthwill still be charged. So at the end of the loan term, you will have an extra amount to settle which was not present at the start when you took your loan.
If you have set monthly deductions from your bank account to pay instalments automatically, deductions will not be made during the period (but check with your bank to confirm).
“Banking institutions should provide individuals and SME borrowers with adequate information on how the suspended loan/financing repayments/payments will be treated during the moratorium period,” BMM said.
From what we understand, no application is needed as the deferment will be automatic and is applicable to loans or financing that are not in arrears exceeding 90 days as at April 1, 2020. Credit card balances are not covered under this moratorium although it may be possible to discuss with your bank about rescheduling payments or converting to loans.
So you have some extra money in the coming months. Do spend it wisely on essentials and don’t go on a ‘shopping trip’ online! If you do not wish to defer your instalments, you should notify your bank.
