Howdy folks,

We won’t ask you how your weekend is going, because chances are that like us, you’re looking forward to another couple of days of memorising the exact position of the cracks on the walls of your home.

For those of you on the frontlines, thank you. We appreciate your sacrifice.

Today’s newsletter special is a very brief one – basically a PSA.

A few days ago, it was announced that as part of the plan to ease the rakyat’s burden during the Covid-19 crisis, repayments for home, car and personal loans will be deferred for six months, beginning Apr 1.

It’s important that we understand what this means and how it will affect us, hence this email.

The first thing to understand is that the loan deferment doesn’t mean you are not going to be charged interest. Your loans will still accumulate interest during this period.

But wait. What is that we hear you saying about how you were told banks won’t charge compound interest? Well, the key word here is “compound”. What this means is that your accumulated interest won’t be compounded – you won’t be charged interest on your interest, which is what usually happens when a person defaults on their loan.

What does this mean in plain terms? Well, for hire purchase and personal loans, it just means your tenure is extended. Why? Because these loans are on a flat interest rate.

But if you’re talking about home loans – whether it’s conventional or Islamic – interest on your outstanding balance will continue to accumulate. This means that once your repayments begin, you could actually see a slightly higher monthly repayment amount.

Take this example by Citibank (point #9). If a person is paying RM2380 on a conventional RM500,000 loan, this six-month deferment would result in them paying RM2,450 (RM70 more per month) when regular services resumes.

For Islamic financing, the six months of accrued payments will need to be settled at the end of your loan tenure.

So what are we trying to tell you? Here’s what

1. This isn’t a no-strings attached free six-month ride that we are getting.
   
   
2. This is automatic and you have to OPT-OUT if you don’t want to be part of the deferment, so please look at the fine print and think carefully if you really need to take up that six-month moratorium.
   
   
3. If you do want to opt-out, check out your bank’s website – it’s generally a pretty straightforward process. Most banks have quite comprehensive FAQs (like this one from Maybank), so read the fine print! And in case you are still at sea, Bank Negara is still available by phone, while your bank should respond to you via email or social media.

And lastly, tell your family and friends about this – share this via Whatsapp or social media. Making wise financial decisions is important, and more so in times of crisis like this. As the old British folk say, don’t be penny wise and pound foolish. 

Good luck and we hope you found this useful!

Team BTL