The moratorium announced by Bank Negara has helped many of us tide through the last few months.
With just two months of the moratorium left and no extension expected except on a case by case basis, we should all be prepared for when it ends.
It's going to be slightly challenging, but our friends from Multiply have put together some useful information and tips to ensure that we make the right decisions when the time comes.
How does the bank moratorium work?
The current bank moratorium allows you to delay your loan payments from 1 April 2020 to 30 September 2020 without affecting your credit history.
(Note: It's just a delay ya, your loans did not magically disappear!)
From October, however, the moratorium which will be extended until 31 December 2020 will only apply for Malaysians who have lost their jobs. For those with pay cuts, you can apply to pay less monthly.
Here is how it applies to the common loans you may have:
Personal Loans/Financing and Hire Purchase Agreements
Usually, these loans have a flat interest rate. If you have this type of loan, there will be no extra interest charged but your loan will be extended by six months which is the duration of the moratorium.
Home/Mortgage loans are normally based on a reducing balance method.
For this type of loan, your interest will continue to grow if you took the moratorium, and you’re likely to have to extend your loan to pay off the additional interest. Your new loan period will depend on what you agree with your bank.
What happens next?
Once this moratorium is over, the safety blanket is off!
You’ll no longer be protected from the possible outcomes of not repaying your loans.
For Hire Purchase and Personal Loans, most of them have fixed or flat interest rates. All you need to do once the moratorium ends is to continue making payments as usual.
For Home and Mortgage Loans, because they usually have floating interest rates or are based on a reducing balance method, you will most likely end up paying off your loan for more than the additional 6 months.
What can you do if you’re not ready to continue repaying your loan/s?
||Rescheduling your loans is basically extending the duration of your loan or revising your monthly payments without changing the terms and conditions of your loan agreement such as the type of loan or interest charged.
||Restructuring is when you need to change the terms and conditions of your loan or the type of loan, for example from a bank overdraft to a term loan.
|Debt consolidation loan
||You take a new loan that pays off all your existing loans. Getting a loan to pay off other loans doesn’t exactly sound like the best idea. But, you’ll get to just pay off one loan with a single interest rate. Just make sure you can afford the new loan or you’ll be right where you started!
If you have only one loan, speak to your bank directly.
If you have numerous loans, speak to Agensi Kaunselling dan Pengurusan Kredit (AKPK). AKPK could give you counselling on how to handle your loans or you could get into one of their debt management programmes.
Here are some options that you could discuss with the relevant authorities:
What if you just don’t continue paying your loans after the moratorium ends?
Just choosing not to continue loan repayments is basically a horrible idea and here's why:
You’ll end up owing a lot in interest: Once you start missing payments, there will be interest and penalties charged that will grow to become a lot of money!
Your credit score will be affected: When you miss payments, you’ll get a bad credit score which would make it difficult to get loans and even apply for services like phone lines in the future.
You could lose the assets you borrowed to pay for: If you have a car loan you’re not paying for, the banks/lenders will take away your car if you start missing payments. If you don’t continue paying your home loan, the banks/lenders will auction off your house to pay off your loan (if it’s sold for less than your loan, you’re expected to pay the balance).
You may be filed for bankruptcy: If you miss many payments, the bank you owe money to can file for your bankruptcy. You’ll eventually lose your assets, your bank accounts will be deactivated, and you won’t be able to get a loan from a bank! This gets really messy.
The idea of suddenly having to pay for all your loans again can be daunting but the best thing to do is to plan ahead.
If you think you're going to have trouble continuing repayments this October, start planning now.
The first thing you can do is to call your bank or AKPK to discuss your options.
Be honest and upfront with what you can pay and understand the options that you have. There's also no reason to be afraid of asking questions. Ask until you truly understand what you need to do and are absolutely clear about your financial options.
Most importantly, don't just wait until the moratorium ends before deciding what to do.
And no, ignoring your loans and pretending that they don't exist will not help you at all.
Just take a deep breath, plan and execute.
You got this!