Moratorium on loans: pay nothing now, suffer later
YOUR SAY | “Having more to pay back later will only increase the rakyat’s debt burden.”
Opting for the moratorium on loans will cost borrowers more – Bank Negara
Malaysia Bahru: The moratorium on loans will certainly increase the cost of borrowing if interest is charged during the moratorium. If interest is charged during the moratorium period, this amount will be added to the outstanding loan balance at the end of the moratorium.
Depending on the type of loan, the interest accrued when added to the accrued future interest could have a cumulative effect throughout the remainder of the loan term, including the extended term, resulting in a considerable increase in the cost of borrowing.
This is why the moratorium and / or any reduction in monthly payments will be at the expense of extending the term of the loan and will have a negative effect on the cost of borrowing.
This can be overcome by increasing loan repayments (to reduce the loan term) once the borrower is in a better financial position.
Banks should facilitate increased payments for the remainder of the loan term. Some banks will refuse random changes in repayment amounts to suck the borrower dry. Be careful.
BrownCheetah9736: Commercial banks are greedy and don’t help at all. They can easily sacrifice some profit by waiving interest charges for three months and even granting interest free credit cards for six months, up to a threshold of RM2,000.
The Ministry of Finance could then also partially compensate the banks through tax credits.
We have a finance minister from a commercial bank protecting vested interests and we have a useless central bank that only helps at all by stating the obvious – that yes, all loans have to be repaid and fees paid. interest accumulates.
Goat Lime2442: Someone who has your best interests at heart will want you to pay off your loans as fast as possible (just speaking for average Malaysians like us, not to mention the fancy plans to leverage debt to maximize returns, etc.).
Delaying loan repayments and having more to pay off later will only increase the rakyat’s debt burden. In addition, with their depleted employee provident fund (EPF) balances.
Smart and good governments will simply give cash donations or subsidize companies to keep their employees, just look at the many examples around the world.
The majority of the flow of money from government assistance programs falls right between the rakyat and its own loans and / or EPF account, which increases the debt burden and reduces retirement savings.
What kind of assistance is this?
Stand up for the truth: The government of Perikatan Nasional (PN) is helping banks under the pretext of helping Malaysians struggling during this Covid-19 pandemic.
They are also impoverishing Malaysians by withdrawing their EPF to help themselves with their own money as the government basks in glory and sings its own praises by saying it is helping Malaysians.
The PN government is nothing other than the naked emperor too imbued with himself to even realize that he is being deceived.
King Kong: You can’t force the banks to stop interest and repayments. Imagine if the big six or seven banks did this and there was a massive sell off of their shares in the market.
The cascading loss will be bad for investor confidence. The problem will trickle down to the ordinary person.
Manjit Bhatia: @King Kong, absolutely. This will crush the economy even more than it is now.
Sooner or later, probably later, you will be faced with another cracking problem. The worst time is when the economy recovers, in relative terms.
The US Federal Reserve is already hinting at tightening monetary policy while the Biden administration is also hinting that it may gradually tighten fiscal policy once the economy reaches a certain sustainable level. That is, the possibility of increasing the official interest rate. This means that banks and other financial institutions will follow suit as well.
Imagine this scenario in Malaysia, where the economy collapses near the bottom of the Straits of Malacca. Or should it be the Klang River? This inevitably means more pain for the economy and its people.
With millions of people out of work (how many “exactly” are unemployed is something national statisticians will admit if they’re true they don’t know) jobs must return in ways never seen before the economy continues to grow strongly, foreign direct and portfolio capital is flowing into Malaysia (as long as the cost of factors of production remains competitive and taxes and the global economy are growing again) and there is a reinflation spark in the economy (meaning corporate profitability on one hand, but more expensive living standards on the other).
One thing’s for sure: you have a scheme that couldn’t run a Cendol curbside store profitably, let alone save a whole lot of money.
The last Samourai: I have some questions. How much has our government subsidized or funded this initiative? I would say zero? Am I right?
We still have to pay additional interest and not have a single sense of government with this initiative.
2 cents: @The Last Samurai, the answer is zero. No subsidy. It is simply a repayment moratorium that will not result in arrears on your account when you stop repaying the loan. You have to pay interest for the deferral.
And the bank loses out from not being able to charge compound interest on top of incurring a higher cost of funds. The borrower and the bank lose.
The only winner is the government by claiming that it has helped you by using your money.
Dr Raman Letchumanan: There are two types of installment calculations. As with car loans, the principal amount on which the interest rate is applied remains the same as in the calculation in the sidebar of this report. This is the simple interest method and the question of the composition of interest does not arise here.
The other more common loan, such as housing, is made by the declining balance method, where interest is calculated on the principal not repaid with monthly or annual rest, that is to say at the end of each month or year. Many do this on a daily basis as it reflects the true cost of funds.
With the exemption from the absence of a composition of interest offered, it is transformed into the simple interest method for the moratorium period since the principal remains fixed. A slight loss for the banks.
Usually the total payment at the same interest rate is lower for the second method, compared to the first because the principal remains the same throughout the period.
Malaysian Melting Pot: Ordinary citizens are more worried if they and their family members may have a meal for the day or be hungry. This is the present, not a month later or six months later. Just imagine not having the money to buy food.
The last thing they want to worry about is the country’s macroeconomics when they’re starving. They don’t care about the price of bank stocks or the consequences. All they want is to survive.
Deferring loan repayments will at least eliminate the problem of not having a roof over their heads while they solve the challenge of putting food on the table.
Anonymous 79: No wonder the banks could still make a profit last year. PN never really helped us. Kita jaga kita. Now part of our EPF money is almost used up. What else can we count on?
The above is a selection of comments posted by Malaysiakini the subscribers. Only paid subscribers can post comments. Over the past year, Malaysians have posted more than 100,000 comments. Join Malaysiakini community and help set the news agenda. Subscribe now.
These comments are compiled to reflect the views of Malaysiakini subscribers on matters of public interest. Malaysiakini does not intend to present these opinions as facts.