As of April 1st, Bank Negara Malaysia’s moratorium on all loans/financing to individuals and SMEs will take effect. The announcement was made on the 25th of March and since then all banks have stated their compliance with the move.
With the exception of outstanding credit card balances, payment deferments will be in place for a total of 6 months, wherein nonpayment of performing loans - including hire purchase agreements (HPA), of course - will be allowed with no action taken or negative impact on CCRIS score.
To car owners, this could be seen as an exceedingly positive outcome, essentially pausing repayments for half a year, allowing us to channel those funds to more pressing needs. Banks swiftly expressed their support in adhering to this imposed financing extension and released their own communication to borrowers.
In order to qualify, bear in mind the loans already have to be performing, denominated in Malaysian Ringgit, and not over 90 days in arrears.
Given that this deferment is automatic and requires no intervention from the borrower, is there fine print that may come back to haunt us for our silent agreement? With that in mind, could it be more financially prudent to continue our loan payments as normal provided we have adequate means?
To find out, we ask some of the country’s most prominent banks just who, what, and how this moratorium will be executed with regard to auto loans. Can we have peace of mind that it is the loan holiday we all want?
What about interest?
This is the main question surrounding the payment deferment and probably the only real thorn left in the side of us tied to a bank to fund our car purchase.
YES - as confirmed to us by Bank Negara and echoed by Maybank, CIMB, and Hong Leong Bank, interest will continue to accrue during this 6 month period as it effectively acts as an artificial extension of your repayment period.
For example, should your loan tenure be 5 years between February 2020 to February 2025. The 6 month moratorium pushes your repayment period to August 2025, though there will be additional interest due at the end of this ‘new’ tenure.
Will interest compound?
NO. Most banks have stated that interest will not be compounded during the moratorium period, nor are borrowers required to make payments (of any kind) on the accrued interest during these 6 months. This also applies to the profit accrued under Islamic Financing. The time will come, though, when borrowers will be given different options to settle the additional interest/profit.
What are my options to settle the accrued interest?
For conventional loans, this could include increasing the repayment rate going forward following this 6 month moratorium, paying a lump sum to normalise interest amount, or to pay a larger sum at the end of the loan tenure.
These options will differ on a case by case basis, regardless if it is a fixed interest agreement or one with progressive release. Regardless, it is handled at the discretion of each bank, so please feel free to discuss these particulars with them as, according to BNM, the handling of accrued interest is under the purview of individual banks.
Should the accumulated interest be an amount you are not willing to part with, whether in one shot or in increments, you can still choose to make regular payments to service the loan as you normally would. However, please take all the necessary steps to properly arrange for your exclusion from the automatic deferment.
What about auto-debit?
According to those same banks we spoke to, all loans currently scheduled for an auto debit monthly deduction will be paused just like those with manual payments.
Of course, if there is no action taken on the part of the borrower, normal repayments will resume at the end of this 6 month period. However, interest will still be accruing on the borrowed amount and the bank may need to revise the auto debit agreement accordingly to reflect the additional interest.
What about new loans?
It really depends how new. Most banks, including the ones we corresponded with, confirmed that as long as you have a performing auto loan (HPA) with a repayment due on April 1st, it qualifies for the 6 month moratorium.
As banks are exempt from the movement control order and operate as usual (albeit with altered working hours), new loans and financing applications can be applied for. However, as the order from BNM only covers loans already active, it comes down to the bank whether repayment can be waived for 6 months (or until the moratorium period ends).
In summary should you be thanking your lucky stars or should you continue financing your loan if you have the means? That our dear readers is ultimately a question for your pockets.
Tepuk poket, tanya berapa?