Should you take the Malaysian Government’s moratorium on loans?

malaysian_government_moratorium_loans

Basically, there are 3 types of loans that are the moratorium is applied on as announced by the Ministry of Health and Bank Negara Malaysia. These are efforts that have been put in place to help lessen the financial burden of Malaysians. They are:

  • Mortgage loans – Housing and property
  • Car loans or hire purchase
  • Credit Cards

Extension for Mortgage Loans

The moratorium will extend housing and property loans by 6 months. This will be done based on a reducing balance model. Generally, housing loans are cheaper than other investment returns loans. For those people who have this loan, the moratorium will help a lot.

Good for anyone who needs extra cash

Anyone who takes this moratorium becomes slightly wealthier with extra cash during the 6 months. After that, there is no effect on your housing loan. Only the banks suffer in this case. They lose the interest income for 6 months.
Verdict: Take the moratorium for housing loan

Hire Purchas and Vehicle Loans

The same case for hire purchase of your car loans as that of housing loans. If you take a car loan from the banks or financial companies under Bank Negara, this moratorium will benefit you greatly.

Extend car loans by 6 months

The only downside is that you complete paying off the loan by 6 months. But it has no bearing whatsoever on your interest rate. If your car loan is for 5 years (or 60 months), you now extend it to 66 months. What you get is some breathing space in the coming 6 months.
Verdict: Take the moratorium for car loans

Conversion of Credit Cards to Term Loans

For credit cards, the situation is different. Basically, your bank will convert your outstanding balance to a 3-year term loan with a 13% interest. The current interest is 18%. Although 13% is lower, it does not mean you become wealthier in the end.

Not advisable if you can’t payback on time

Whatever it is, 13% interest is still high. If you have problems paying back in the future, the compounded interest becomes higher. If you are able to service your credit card at the current rate, then you should stick to it and try to pay off the outstanding as soon as you can.
Verdict: if you can pay off your outstanding balance as soon as possible, don’t take the moratorium for credit cards.

Last piece of advice

The moratorium is both beneficial and harmful depends on which way you see it. You should think through what you plan to do after the MCO. Don’t take the moratorium now and expect to have extra cash once the MCO is lifted. That would be too dangerous.

Be prepared for emergencies

Whatever the case, take the moratorium, keep aside some extra cash and have a sufficient amount in your bank account. You’d never know how long the MCO will go on for or if there will be a full lockdown in the coming weeks. You cannot take it for granted that there will always be cash coming in from your accounts.

Update 6-month Moratorium loans under Bantuan Prihatin Rakyat

In relation to the 6-month moratorium provisions under the BPR, the government of Malaysia has issued an update on 2 types of loans.

  • Hire purchase loans
  • Fixed-rate Islamic Financing loans

Changes from 1 May 2020

According to the Malaysian government, after consultation with Bank Negara Malaysia and the Association of Banks Malaysia (ABM), there will be changes imposed on the abovementioned loans.

  • Customers will no longer enjoy interest-free payment for the 6 months moratorium as announced earlier.
  • The moratorium will not be an automatic opt-in for holders of these loans.
  • Interest and profit charges will be imposed on the loans during the 6-month moratorium and it will not be interest-free.

How will this affect the customer?

If you have chosen to defer your 6-months payment, you will then have to either:

  • Pay the 6-months (accumulated) instalments in your October 2020 instalment to avoid any additional interest, or
  • Continue repayment of instalments after October 2020 through by extending your total term by 6 months. The interest will be charged accordingly.

In other words:

  • If you choose the first option, you will have to pay 7 months instalment in October 2020.
  • If you choose the second option, your monthly instalments will increase starting in October 2020.

What do I need to do?

You will now automatically be opt-out of the moratorium if you hold any of these loans. However, if you want to opt-in, you will need to contact the bank. The bank will be notifying you on this and you can take it from there. Ensure you know what you are in for before deciding on this.

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