BNM: You will be charged interest on your paused HP loans

This is a developing story and we hope to have more for you in due time. 

In an early Labour Day gift, Bank Negara Malaysia (BNM), late yesterday evening announced that hire purchase (HP) loans will come with additional interest charges after the six month moratorium or holiday effective from April 1 to September 30 of this year.

TL;DR, if you took the six months HP loan holiday it WILL NOT be interest free and you'll have to pay the interest at a later date. 

You have three options according to the Association of Banks in Malaysia (ABM)

• Option 1: When the moratorium ends, you pay the accumulated six months instalment plus the seventh month. With this option you will not be charged any additional interest.
   
• Option 2: If you opt-in for the moratorium, you will see the interest charged on the six months holiday spread out over the duration of your loan period. This effectively means that you will have to pay a higher monthly instalment beginning October 2020. Your loan period will also be extended for a further six months. 
   
• Option 3: If you choose to opt-out of the moratorium at this point, you will be given "reasonable time" by your bank to pay any outstanding scheduled payments for April 2020 when the moratorium begin. Banks will not impose overdue or late payment charges on these payments which will be based on the revised payment schedule agreed with you. 

For many, Option 1 is a little far-fetched. Even at a monthly repayment of RM500 a month, seven months would total RM3500, a significant amount in these times. 

Let's paint this scenario with numbers from BNM themselves: 

Loan: RM50,000
Remaining loan period: 5 years
Interest rate: Fixed interest of 2.71% (or an effective rate of 5.36%) per annum

Now looked at from a monthly basis RM19 is a small amount but take a wider look, RM1,130 or more accurately RM1,140 (we're not sure why BNM's calculations are RM10 short) is not so small anymore, is it? Let's also bear in mind that this is only for a RM50,000 loan at a fixed interest rate of 2.71%.

Perhaps a silver lining is that according to ABM the first two months of the moratorium will be interest-free (April and May 2020) so in effect you will only be charged interest for four months (June-September 2020)

A question that is lingering on many minds including ours is why did BNM not announce this when the offer for the moratorium was made to all Malaysians on March 25? Many of us due to salary cuts or loss of jobs took the moratorium on the basis that it would be interest free. Sure, one could argue that BNM never said nor confirmed that it would be interest free but neither did they dispel the general consensus that it would be. 

Expect to hear from your banks soon on any changes to your HP agreements including your revised payment schedule and changes to your payment amounts if you still choose to opt-in for the moratorium. 

Were you one of those that took the six month moratorium? Do you feel unfairly treated by this latest announcement? Let us know.