How Does A 6 Month Loan Moratorium Affect You?

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National Bank of Malaysia's entrance.

The PEMULIH package announced by prime minister Muhyiddin Yassin, is a RM150 billion aid package that will also include another six-month loan moratorium .

The first moratorium was announced back in July 2020 and only came into effect in September 2020. For many of us Malaysians, the announcement of the loan moratorium by Bank Negara Malaysia (BNM) was met with huge sighs of relief.

At a time when job security is threatened, the decision to not penalize missing substantial monthly commitment is welcoming news indeed.

If you’re unfamiliar with the term, this may be a moment to start reading up on loan moratoriums and how it could affect you.

To start of with, what exactly is a moratorium?

What is a moratorium?

A moratorium is a temporary suspension of activity until future events warrant lifting of the suspension. Moratoriums are often enacted in response to temporary financial hardships, such as those seen in recent times of the pandemic.

Often indicted when a crisis disrupts normal everyday routines, governments typically grant a moratorium during floods, droughts or disease outbreaks; it is then lifted when the population returns to normalcy and there is no significant threat to livelihoods around.

Unlike in 2020, the moratorium in July 2021 isn’t automatically applicable to all. To qualify for one, one has to send in their appication from July 7th onwards.

The moratorium accepts applications from all individual borrowers and microenterprises and will be granted without any conditions or documentation.

Small and medium-sized enterprises that have been adversely affected by the pandemic can apply too, with only self-declaration required.

So, once you’ve applied and got approved, how will it affect you?

Deferred loan/financing

You don’t have to meet your pre-agreed monthly loan payments throughout the six months and will not be penalized for it.

We get it and so does the government. When money is tight, allowing the people to defer their loans can be life saving.

Approval is automatic but you’d still have to contact your bank in order to apply for it.

There will be no compounded interest or penalties for and it will also not work with credit card debt.

However, the moratorium only works for loans and financing approved before July 1st 2021, interest will still be accumulated and doesn’t apply to loans/financing that are more than 90 days on the date you requested for the moratorium.

Delayed payments, a good thing or bad thing?

For starters, not having to pay for your loans will help with a monthly budget if you have one. This will come by as a silver lining especially for those who are forced to take up unpaid leaves.

It will also help if you are successfully juggling and have been paying off multiple loans.

If you have loans such as housing, car or other personal ones, the moratorium is something to consider.

While you’re saving up on not having to pay your dues, BNM notes that interest still accumulates during the moratorium period.

A decision that was backtracked later in May, there will now be no additional interest charged to flat-rate car loans (which is the most popular car loan in the country).

This is because the interest follows a flat rate basis, and since the principal sum does not increase, you will enjoy a true “payment holiday” with no implications from today until the end of September.

Interest rates

On normal days, you would still be accruing interest; what makes this different is that interest is simply being added to the total loan amount.

When enquiring with banks about the moratorium, it’s vital that you seek the information on how they are handling the interest rate situation; pay attention to the news and remember to check legitimate sources such as the bank’s website.

In most cases would need you to either just adjust your existing loan tenure or to increase your monthly repayment amount after the moratorium ends.

Update:

Announced in May, interest will no longer accrue for hire purchase agreements for both conventional and Shariah variants, with no further changes to their agreements with the exception of an additional six-month extension to the tenure.

With that, we can safely and easily recommend taking up this deferment again, with the following explanation from above:

Credit

More on the elephant in the room, the moratorium doesn’t apply to credit card debt, but BNM has directed banks to offer the option to be able to convert credit card balances into three-year term loan or financing with lesser interest/profit rates.

By offering an indirect way of allowing credit card holders to pay off their balances, this takes advantage of the moratorium. However, much like every other applicant, nobody will be free of interest accruing.

If you’re already capable enough of paying off your credit cards loans, maybe switching over may be a hurtful move.

If you are facing financial hardship, then it may be something you can consider.

Don’t take the deferment if

You should understand by now that this moratorium is targeted towards those who are in financial difficulties and need the assistance.

If you’re one of those fortunate enough to be able to service your loan as usual, perhaps leave this out. Leave it for those who are actually having a rough time.

Missed payments

If you’ve not paid your loans for more than three months, you will not have access to this moratorium. The moratorium is used to improve the economic impact caused by recent lockdowns, not make it worst.

Although it doesn’t come by as good news for those already in financial hardships, credit counseling may help.

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