Recently at the end of June, Prime Minister Tan Sri Muyhiddin Yassin announced a 6-month loan moratorium grant to all borrowers including B40, M40, T20 groups and even micro-entrepreneurs. Compared to a similar moratorium in 2020, this time is on an “opt-in” basis, which means you have to apply for them. There are certain conditions to be eligible like you cannot have missed any instalment by more than 90 days, or be in the middle of a bankruptcy/winding-up proceeding. The good news is, no documents are needed to “opt-in”.
The Central Credit Reference Information System (CCRIS) is an important part of obtaining a potential loan. It’s a way of assessing your financial health by determining the creditworthiness of a borrower. Delaying loan repayment will usually lower your CCRIS score. However, for any repayment assistance received in 2021, borrowers’ CCRIS records will not be affected.
But, it incurs more cost…?
According to the central bank, the overall cost of borrowing will be raised for borrowers who choose to opt-in. Payment will be deferred for 6-months without any compounding penalty interest or profit. However, in the end, interest will still be calculated for that 6-months which leads to additional borrowing costs. Borrowers may also see the tenure of their loans extended because of this. Each bank has set its own terms and conditions for the treatment of interest during the moratorium.
How to apply for the 2021 Moratorium?
Banks that are offering opt-ins include RHB Banking Group, OCBC Bank (Malaysia) Bhd, CIMB Group Holdings Bhd, Affin Bank Bhd, Malayan Banking Bhd, Public Bank Bhd and more.
So far, all the banks above except for Affin Bank Bhd also offer alternative options like a 50% reduction in instalments for 6-months. Most of them cover all loans except for outstanding credit card balances. However, some banks like OCBC Bank or CIMB Bank do offer their cardholders options to convert their outstanding card balance into term loans with reduced interest rates. Customers who are interested in the loan moratoriums can apply via their preferred banks’ corporate websites.
Borrowers can always refer to Bank Negara’s Loan Repayment Assistance page for more information.
Whilst it’s best to check each bank for their terms as they all differ, here are some general terms for the different loans.
1. Car Loans
Most banks will accrue interest during the deferment period. When paying the final instalment, the accumulated interest is to be paid off in one lump sum.
2. Personal Loans
Interest will be accrued during the deferment period and the loan tenure may be extended. Different banks have different terms for this. Some banks require the accumulated interest to be paid together with the final instalment whilst for other banks, accrued interest can be paid in one lump sum at the end of the deferment period.
3. Home Loans
For conventional home loans, interest is charged on a reducing basis and will still be accrued but not compounded during the deferment period. But after deferment, the accrued interest is added to the total outstanding balance which will compound over the remaining loan tenure.
As for Islamic home financing, the accrued profit will be kept separate from the principal balance because compounding profit is forbidden under Shariah law. Repayment made after the deferment will be used to offset the financing profit first. As such, repayment to the principal is done at a slower rate thus, the extended loan tenure will also increase the overall borrowing cost.
So, who should take this moratorium then?
It’s advised that those with cash flow issues consider the loan moratorium to prioritise survivability during this time. So, even though one might need to pay more at the end of that 6-month, this moratorium helps extend the person’s lifeline to live another day and keep going until the pandemic situation improves.
Besides that, a person might opt-in for the moratorium to settle their bad debt like credit card debts or personal loans which might incur a much higher interest. It’s like taking up a loan with optimum interest to cover another loan that could have a 2-3x interest rate. This way, the borrower would be able to save up that amount of interest.
However, I think that those who can afford to repay their loans should continue doing so to avoid paying that additional accrued interest.