In an announcement by Bank Negara Malaysia (BNM), hire purchase loans and fixed-rate Islamic financing will come with additional interest charges after the six-month moratorium that is effective from April 1 to September 30 this year. In short, if you choose to take up the six-months payment pause, it won’t be interest free, and you’ll have to pay the interest later.
So there are two ways to go about it, according to the Association of Banks in Malaysia (ABM). One is when the half year moratorium ends, you pay the accumulated six months of instalments together with the seventh month instalment. Choose to do this and no extra interest will be charged, although we can imagine that not many will be able to cough out the big lump sum.
The second option – if you choose to take the moratorium offer (remember, you don’t have to) – will see the interest charged on that six-month pause spread out throughout the loan tenure. So you’ll have to pay slightly more than your usual monthly instalment from October 2020 onwards (more on this later). The loan tenure will also be extended for six months, six months because that’s how long “time was paused” for you.
It sounds a lot worse than it actually is, and BNM has given a simplified example above. It says that for a hire purchase loan of RM50,000 with a remaining tenure of five years and a fixed interest of 2.71% (or an effective rate of 5.36%) per annum, the monthly instalment will go up from RM712 before the deferment, to RM731 after deferment, or October 2020 onwards.
This works out to an extra RM19 per month, or a total of RM1,140 over the full tenure (yes, it is that and not what is on the BNM FAQ panel – sure, it could be RM18.83, but you’d think as a bank, someone would get that spot on or round it to RM18.80). BNM also states that for this example, the instalment amount increases by 2%. If we’re counting, however, that works out to an increase of 2.67%, but hey, 2% sounds easier to swallow right?
Exact figures for your own car loans will vary, of course, depending on your monthly instalment, remaining tenure and interest rate (though the rate that is more important here is the effective rate, sometimes referred to as the Annual Percentage Rate or APR, which is not as straightforward). The longer your remaining tenure is, the more you’ll have to pay (as the banks will get the money owed that much later), but the monthly hit will be relatively small, as shown above.
UPDATE 2:The central bank continues to add to its FAQ. With regards to the HP issue, it appended this “additional guidance” in its latest revision (see panel immediately below the update):
“The above example assumes the borrower has chosen to stagger the repayment of the total deferred instalments over the remaining extended tenure of the loan when monthly repayments resume in October 2020.”
“However, some banks may instead provide borrowers/customers the option of repaying the total deferred instalments, including interest, as a lump-sum settlement during the final monthly instalment at the end of the loan/financing tenure. In this case, there will be no change in the monthly instalment amounts paid by borrowers/customers when the monthly repayment resumes in October 2020.”
The first part is simple enough, as detailed earlier above and a six month extension to the loan period, which is how long “time was paused” for you. The second incurs a huge payment in the final month of the loan repayment, because you will have to pay the final instalment plus the deferred six months instalments, along with interest, at one go. In simple maths, that’s seven months instalment plus interest over the period, one shot.
It is also worth noting that this option will see interest being accrued on the remaining and unpaid deferred instalments, so it could add up to more than the earlier option. You will want to check the terms and conditions as well as repayment options that are provided with any agreements or notices from your bank.
It was previously assumed that those who chose to take up the moratorium would not be charged additional interest on their deferred payments, seeing how hire purchase loans and Islamic financing plans follow a fixed-rate basis, where interest charges are calculated upfront, but this is an unprecedented situation and is not the case.
UPDATE: The original view – and our report on this – that those who chose to take up the moratorium would not be charged additional interest on their deferred payments was correct, as the BNM FAQ on March 27 indicates – there would be no additional interest charged on HP loans.
This mention regarding HP loans was subsequently dropped in the amended FAQ on April 21, and mention of interest being charged emerged, leading to the current developments detailed for May 1. We have included images of the BNM FAQ as reference (see below).
In an official release, the central bank directed banks to inform borrowers/customers on any changes to the terms of their agreements should they choose to take up the moratorium, including the revised payment schedule and any changes to payment amounts – the latter includes those arising from normal interest/profit rate accrued during the moratorium, which is the fresh bit.
For individuals who no longer wish to take up the moratorium, they can can still choose to do so at this time by informing their respective banks and continuing with their scheduled payments based on the terms of their existing agreements.
In this scenario, they will be given “reasonable time” by banks to meet any outstanding scheduled payments that were earlier deferred under the moratorium, which would technically be for the month of April 2020 when the moratorium period began. Banks will not impose overdue or late payment charges on these payments until they are due based on the revised payment schedule agreed with borrowers/customers.
The directive issued by BNM is to to ensure borrowers/customers with hire purchase loans and fixed-rate Islamic financing are provided with all necessary information in relation to the six-month moratorium that was previously announced on March 25, 2020.
This is to ensure compliance with the procedural requirements under the Hire Purchase Act 1967 and Shariah requirements, which are applicable to any changes that are made to the terms of these agreements, including changes to the payment schedules and/or amounts as a result of the moratorium that is effective from April 1 to September 30 this year.
This process will begin from May 1, 2020, where banks will need to notify borrowers/customers with these financing plans via SMS, email or registered mail on the necessary steps that they need to take to complete the process of deferring their loan/financing payments under the moratorium.
What do you think of this latest development? Is it a fair move by banks? On the flip side, we can’t expect banks to fully absorb everything during the moratorium period, although the sudden decision may catch many by surprise given the earlier stand detailed by BNM. Let us know your thoughts in the comments below.
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Greedy banks and incompetent gov in cahoots!
kena tipu again
I personally don’t think our present gov haven’t thought these move thoroughly. Most hire purchase were RM500 above per month and that would leave a big hole in the pocket whilst some of us get payed half of our monthly wages. Most of us don’t have enough savings to survive even 3 months in advance. So car loans would be the best bet to encounter this matter. We still don’t know when this pandemic is going to end. Despite actions taken to stabilise the economy the effect is there.
Banks are not greedy. They have to cling to the economy. In the same time they have to listen to BNM. Whether they like it or not they have to adjust here and there to cope.
Writer state that options given to handle yourself. If you have the money to pay after moratorium period then dump it there. For me personally if i’ll be charged RM15 per months per loan that’s not a hole, more like a pinhole.
Cheers mate.
Hidup dah susah..kerajaan lg cekik, fuhh parah.
Conglomerate business entity is more paramount than citizens livelihood.
At least this government still gives us a way out from financial bankruptcy. If we’d remained with PH by now, not only the COVID death rates would match those of Britain’s but we would be forced to pay to dig our graves.
IF..IF..IF..yawn
Why the sudden u-turn?
Enough is enough. Time to throw them out
No it didn’t. The moratorium basically meant freezing the loan term and extends it when payment resumes. While the government gave this option to those badly in need of money, you can opt out for it. Further, it is understood early on the interest continues to run so this isn’t something new or shocking.
To some, like those losing jobs, this is a godsent and quite a farsighted action taken by the government so they can restart paying their loans when they could. Compounding an appropriate sum of interest is fair to both sides.
I think you are mistaking HP with other loans, it is already known there will be non-compounded interest. However HP loans is a fixed total interest repayment so the moratorium allows for deferment of payment for 6 months with the same interest amount being paid.
We are facing a crisis that affected people all around the world. It is not like the govt are announcing a manifesto to win people’s vote here. This moratorium is a breather to those who looses their job in this difficult time to avoid from going brankrupt as a result from not being able to serve the loans. This option is just like AKPK where your loans will be consolidated and restructured to suit your new financial capability, but you still have to serve interest. Only different this is automatic to all without having to go through the hassle application procedures of that of AKPK. So stop whining, if you have the means just continue serving your loan otherwise just take the loan holiday.
Did you read the news? It is well known that interest will compound on all loans, including car repayment when their term is extended due to moratorium hence I asked my bank to continue loan payment as normal.
Bnm lackey
Don’t blame anyone for fooling yourselves. The moratorium is for all loans if you had read, and like some said its been covered in mass media news all over the place. Even The Star had economic experts written analysis on the pros & cons. If you noobs choose to read only political news, the blame goes to you.
dude don’t make yourself look stupid with such comments, go read up before u comment logically
Luddite people just coming our from caves and now blaming the government for saving their asses? Well done people.
Always see one in every few comments berlagak pandai like “eh where got u-turn” bla bla. Bodoh
First time? – James Franco
There is no such thing as free lunch in this world….
There is no such thing as fairness in malaysia…
Yes. No such thing in our world.
Well said. Those who dreamt so and blaming the Government for not getting some are just naive and don’t know how reality works.
This is not acceptable as this gov cannot be trusted. Pls do not do any u turn as it may jeopardise all our planninh
May I know what is fixed rate Islamic financing applies to which products? Personal loan only ?
So so so disappointed by the banks and BNM on such a blatant u-turn when the masyarakat is going through such hardships.
I doubt it was BNM who did this. Sure they give the guidelines for banks to follow but I suspect it was the banks and their major stakeholders who put pressure on BNM to U turn. Money talks
Pity the banks, how else to pay themselves 18 or 24 months bonus. Adoi rakyat
The 6 months arrears of repayments should just prolonged the loan period for another 6 months only,which already included the interest. Why need to pay another form of interest
yes, the calculation scenario shown indicate a double counting of the interest portion.
Because instead of 108 months repayment operiod it is now 114 months. So interest accrued for the additional half year.
However..Bad u -turn
Back door government will always U turn in what ever they do. Cannot be trusted
i always opt out for my loans. i make it a point to save 12 months living expenses for this kinda situation. even if i lose my job, i can still last 12 months. those who don’t save will be the one that suffer.
@PT
This is rather old news and massively covered last month when this direction was given. I think anyone by now would have understood this isn’t something new or shocking if they had been reading news. Real news.
Back then it was interest free for the whole 6 months, bbut now it is not, how is this an old news?
No it wasn’t. I called my bank to maintain payment as scheduled when I read the news that interest payments will continue regardless. Did you read the news?
Both Alan and Jack are wrong. The original announcement was clear that interest would continue for mortgage loans. For car loans, it was equally clear (and mirrored on the respective banks’ own FAQs) that there would be no interest during the 6-month moratorium. This is a U-turn, plain and simple.
So now know why non-bank FI cannot follow suit in offering 6 months moratorium
I am in the midst of looking for jobs, suddenly MCO. Companies who plan to hire change plan. Economy bad to worse. No income for few months. Government then announced that we can defer our installments with interest free for 6 months from April 2020. Felt hopeful with this new government.
Wah, today, just 1 month of deferred installments started, government changes the news that we have to not only start paying for our installments of April and May latest by June 2020, if not there’ll be interest charged, which at first we are given 6 months deferred installments with interest free while the payment tenure just extended behind by another 6months.
Already have no income, in addition have used up our savings for the necessities during MCO. Suddenly government changed plan from 6 months interest free with tenure extended behind by 6months to 2months and accumulative payment with current installments.
I think our government never understand his own nation. Its already a pain to pay for current installments, now have to pay extra.
We have used up our savings for the necessities as don’t know how long will be the MCO as installments only started again 6 months later. But now changed to 2months later & payment not extended behind by 2 months but add on to the next month.
This new government bring hardship to rakyat.
While I am sorry for your unfortunate turn of events, did you read the article in full? You can still opt for the moratorium, i.e. resume loan repayment in Oct 2020. There will be slight increase in the repayment, as interest will be accumulated throughout the moratorium period, minus April and May 2020.
Whatever it is, I hope you will get a new job soon!
I think he/she did read on full. It’s just that the banks are being unfair because the HP loan interest has been factored in when you sign the document. Now when there’s a national pandemic and everyone is suffering, they went ahead and impose additional interest for those who cannot meet their obligations after initially agreeing to help their customers out.
I hope with this, the nation will learn from their mistake that the banks especially cannot be relied on to help you out. Better save money when you can and where possible, pay in cash for your vehicle or pick the shortest loan tenure next time so you don’t have to feed these greedy bankers aka legal ah longs.
This is not a u-turn but the bank is asking the bank negara for costs that the bank is still cover for 6 months at no cost to the customer.
BNM is supposed to protect the end clients, not be part of the problem!
It means that u have to pay extra 6months interest because u chose moratorium. Wow wow wow. Good move Bank. Very good one.
Blame BNM! And the inefficiency of the new government!
The banks said nothing about charging interest on HP loans when the announcement was made. It is not rocket science that they would be out of pocket. They lead us all to believe that there would be no interest charged but merely instalment deferred for 6 mths. This u turn in unconscionable to say the least.
Another U Turn government worse than PH
Dear Bank Negara. Being a citizen is my pride. But making a u-turn is killing similar to covid-19. I have lost every income from my work since 18/03/2020 until present. At first it was a great help because I have no income as my work is a day to day work. Thus, I have no support from the government not even a cent. I have four children studying in university and mostly the fees for their study comes from what I make. I hardly have any savings thus with the current measure due to covid-19, I have used up every savings for my kids fees to buy food.
Then suddently, this u-turn, where do you expect me to get money. I am surviving like how the hen finds worms.
My only suggestion to BNM is to not charge any further interest for the current 6 months because our loan tenure will be added thus interest has been charged on that six months. This would be a great help. Please try to understand if you were in my shoes how would you feel.
I am not allow to leave home during this MCO. Soon if I have to pay the bank I will not have money for food and also for my kids education. I can’t also ask for assistance due to not entitled following the scale. Do you plan to kill us all???
I am writing this to tell you that I totally disagree with the current u-turn. Please help our nation rather than slaughter us in silence.
Please have your principles right as the head of all the bank and not be a part of them.
Regards,
Disappointed me.
they will tell you, no money who ask you borrow money hahaha
Banks nvr even pay cuts. must feed them k LOL
Better write to BNM than on a paultan post. I doubt anyone from BNM is gonna see your plight.
Why the hell you need to blame BNM when the government can instruct the other way around?
Plus, the idea of this moratorium was announced by our 8th PM. Obviously been overseen by our Finance Minister who happened to be an ‘experience’ former banker. How can he not seeing this coming? Is he free from mistake and can simply blame others?
Riba true charm. Like expected.
You signed deal with Riba. Its you.
End of Mar 2020 I received sms from bank offer to postponed my loan payment from April to Oct. When check the T&C at bank website, they mentioned that I still need to pay the int (for 6 mths postponed payment) later!. So the news is not new.
*Sigh* bank negara and the goverment seem to be incompetent. Announcement was just made a month ago, being an Financial institution they should have seen the circumstances of doing it so. Agreed to the monotarium and the next month charging us for it. It is day light roberry. I shouldnt be paying the first month interest, the goverment and BNM is the one announce there will be interest free moratorium for the next 6 months, now want to charge me for it ??. Why????????
I don’t think there was a u turn. At the first place BNM had regulated several criteria and it did mentioned it will be an additional interest on defferment (more likely optional rescheduling process) but not a penalty interest and bad record. But on how it will be charged it leave to commercial bank to take time and amend the loan contract or agreement, may be on conventional or islamic would be different calculation. I know we are facing the hardship now, whatever we do get the right source of information first.
Firstly, let’s not banging 100% on G’ment for this chaos. Those greedy big boys of HP industry who rock the boat!
Secondly, it will open up opportunities for the HP experts. Lawyers are smiling from ear to ear watching this move. HP Act spells out items that allowed to be charged, not more than that. To charge ‘interest-over-interest’ is taboo! So let’s see what will happen to those greedy bankers in near future…
What to do? Bank CEOs get fat cheques every month, all paid expenses, etc…..while the rakyat get squeezed again and more..
I want to be fair on the banks, but i feel for those affected by the MCO. Whatever it is, i hope the banks will reconsider their policies and procedures so that nobody is oppressed when time is good after this. Rethink and revise.
We can see someone’s nose getting longer since start of MCO.. but Makcik Kiah still as happy as then
keep changing policy ^^
Why did they started with Memorandum? Instead of 6 month at least make it 2 months or pay half for 6 months… This is really greedy banks who doesn’t want to help people.. Im really not happy with thier services. It is not fair.. Just because we receive money from BHN and KWSP it doesn’t mean that they can start doing it…
For what ever reason someone should be responsible. The government need to implement the moratorium as promised previously. They must be a way to overcome this rather than go back to the borrower.
Uturn government bs’d the public again. We get screwed over and over. FM is a stooge to the banks.
Interest for banks is their “rice-bowl” anyway deferment too me is only to ‘lighten the load not abolishing’.
These banks have been operating in our country for years and throughout all these YEARS they’ve been raking in billions in PROFIT from people from all walks of life. Surely they can help the people, we their customers, for 6 months, if they really wanted to. As the saying goes, a banker is one who gives u an umbrella when it’s sunny and take it away when it starts to rain.
Total BS.. Don’t sugarcoat it in the beginning and now u turn. If it’s with add on interest, the car loan memorandum should not be automatically applied to the loans! Is it helping the ppl or the bank now. Damn it!
Monthly hire purchase installments are in essence a repayment of the loan principal + interest.. going by the above calculation, it sounds like banks would be charging interest on the interest portion that forms part of the installments being deferred.. isn’t that a compounding of interest effect which most banks claim they wouldn’t do during the moratorium period?
I like this comment. It is a form of compound interest. There is no help provided at all for people who need it most. Might as well do loan refinancing by individual.
That why we need wakil rakyat as finance minister. Not a banker.
True that, banker screwed up! bring LGE back!!
It’s bad enough not being able to work during the Lockdown! The moratorium as announced earlier was a great relief but this new arrangement is still better than nothing at all. Ask yourself if it’s fair to the customers.
Our HP has already computed with interest. Which means when we resume the repayment, we are already paying the original interest from the loan. This pandemic hit every industry. Instead of protecting the people, BNM should know that all banks need to also help to weather the storm by sacrificing some income, but instead choose to listen to greedy bank. For that 6 mths for auto financing, a deferral repayment is just a form of how the economy is hit by the situation. Let the people has a breather. Every industry is affected so why the banks must win all the time? House mortgages and business loans work on compound interest and we hv no choice too. Even this little breather u don’t extend to the people and u expect the nation wishes u a robust economic growth? Business is business, but when it comes to difficulty like this, we can judge ourselves which businesses are actually more humanly than others and how reliable, compassionate and capable the government is.
nothing is free in this world…expect another similar announcement from the ‘licensed loan sharks’ on the housing loan moratorium…
I always knew central bank will always back the banks (behind). Made the right choice investing most of my money in bank stocks, im rubbing my hands right now for sweet dividend .. huat arrrr
Quadruple whammy, high car prices, thus high loan/interest, fixed which is actually even higher and now extending period of loan tenure.
Belakang Mari Government. No surprise they “Belakang Mari” us again in this issue. Expect them to do more in the future.
Guys..
Anyone knows how the sample given by BNM calculated?
Bank should do thier part to help thier client in this situation. Why april no interest but may onward got interest? So bank hv an option to use or not use the act that the ABM mentioned.
Hi, 712 over 5 years is only 42,720 how to cover 50k loan ?
It says a RM50k loan with 5 years left.