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The government recently announced the PEMULIH package on June 28. As part of this RM150 billion aid package, there will be another six-month moratorium on bank loans.

This is the second moratorium to be implemented since the start of the pandemic, with the first being announced on July 29, 2020 and coming into effect in September of that year.

Unlike in 2020, the July 2021 moratorium is not automatic – you have to apply for it from July 7 onwards. All individual borrowers and microenterprises can apply for the moratorium, which will be granted without any conditions or documentation required. Small and medium-sized enterprises that have been adversely affected by the pandemic can apply too, with only self-declaration required.

Opting for the moratorium won’t affect your Central Credit Reference Information System (CCRIS) report.

While it appears straightforward enough, how does the loan moratorium and repayment assistance actually affect you?

Deferred loan/financing payments

The major point for most people would be the moratorium on repayment or payment of financing for six months. It is basically saying that you do not need to meet your monthly loan payments for that amount of time, and will not be penalised for it.

The important things to note about this initiative are:

  • While approval is automatic, you will not be automatically enrolled for the moratorium. You must contact your bank to apply for it.
  • There will be no compounded interest or penalty charges for those who take up the moratorium.
  • However, you will still accrue interest normally during those six months.
  • It does not apply to credit card debt.
  • The moratorium is applicable to loans/financing approved before July 1.
  • It does not apply to loans/financing that are more than 90 days on the date that you request for the moratorium.

Effects of delayed payments

What happens during those months where you don’t have to pay for your loan? Well, for one, it helps with your monthly budget. Particularly those who have been forced to go on unpaid leave and may be struggling to make ends meet.

In this case, the measures are welcome for those who are juggling housing, car, or personal loans. This is provided that they haven’t been missing any payments over the last three months.

However, as noted by BNM, interest still accrues during this moratorium period. So, while you may not have to pay anything now, you will end up paying more in the long run as all accrued interest during those six months will still be added to the total amount that you owe.

Example

You have a loan with an interest rate of 12% per annum, you would roughly be accruing interest at a rate of 1% per month. So if you took a personal loan for RM10,000, the total amount that you need to repay would increase at a rate of RM100 per month.

If you were paying RM500 per month to cover the loan, RM100 of it would go to paying off the interest. However, during this moratorium period you would not be paying anything, but the amount that you need to repay would still be increasing.

To be clear, under normal circumstances you would also be accruing interest during this time. The exception is that your monthly instalments would be used to pay down this interest. Now, without the instalments, the interest is simply being added to the total loan amount.

Banks have been directed to provide their customers with adequate information on how they are handling the interest rate situation, so it is best to pay attention to the news and remember to check with your bank’s website over the next few days. In most cases, it would be to either adjust your loan tenure or increase your monthly repayment after the moratorium ends.

It’s important to point out that this moratorium also means that your credit score will not be penalised for not making any payments during this time.

What about credit cards?

If you only read headlines, then you will know that this moratorium does not apply to credit cards.

However, BNM has directed all banks to offer customers the option to convert their credit card balances into a three-year term loan or financing with reduced interest/profit rates.

This is an indirect way of allowing credit card holders to delay paying off their balances at the end of each month by taking advantage of the moratorium on loan repayments. However, converting the balance into a term loan does not mean that these holders are free from accruing interest.

All it means is that the amount of interest will be subjected to the lower amount from being a term loan, instead of the more substantial credit card charges.

At the same time, it is also subject to the same accrual of interest that loans and financing have to deal with in the first place. If you are able to keep paying off your card balance then switching over may not help, but if you believe that you are going to face financial hardship during this extended movement control order, then it may be something to consider.

What about missed payments?

Those that have been missing their loan repayments for more than three months are not covered under this moratorium. This is because the measure is meant to alleviate the economic impact of the current movement control order that was implemented on June 1.

It may not give relief to those that have already been facing financial difficulties for a longer period of time. If you’ve been having problems, then it would be wiser to instead seek credit counselling from a body like AKPK.

For more information about the moratorium and how to apply for it, visit the Bank Negara website.

This article was originally published on March 25, 2020 and has been updated with current information.




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