By Suraya Zainudin,
The economic impact of Covid-19 has affected Malaysians from all walks of life. If your income was affected, you likely felt the immediate and most direct impact. You are also probably worried over how to pay your loans and instalments, whether it is a home loan, a hire purchase agreement (better known to all of us as car loans), a personal loan, or even credit card debt.
Thankfully, the Government installed a never-before-happened “blanket” moratorium for all Malaysian consumers and businesses. No need to pay a single instalment for six whole months! I did some research and found that Malaysia is actually the only country in the world to have offered a 6-month blanket moratorium! Countries around the world have their own form of loan moratoriums to assist borrowers, but Malaysia’s version was the least complicated and helped most citizens.
This moratorium also bought us all some time to recalibrate our finances, realign budgets, and to quote the oft-used cliché, adapt to the new normal. But as with another popular adage, all good things must come to an end – the blanket loan moratorium is ending on 30 September. And that’s definitely a worrying thing for those who are still affected by the economic aftermath. Those who suffered salary cuts or retrenchments may face difficulties in resuming their loan repayments.
If you’re one of those facing such difficulties, this is something that requires your very urgent attention: you need to explore your options before the moratorium ends on 30 September 2020. You do not want to be stuck in a situation where you are unable to repay your loans, or racking up credit card debt due to cashflow issues – this downwards spiral is hard to get out of, so let’s not go there.
Ignoring Won’t Make the Problem Go Away
Let’s address one of the most important consequences of missing your loan payments and credit card statements. No, it’s not just being slapped with a late payment penalty or additional interest charges. It is also the negative impact it’ll leave on your credit health. As a responsible working adult, your credit health is extremely important to maintain.
You see, missed payments on loans and credit cards will appear on your CCRIS report. CCRIS, which stands for Central Credit Reference Information System, is a database managed by Bank Negara Malaysia (BNM) that is basically a report card of your credit health – and all banks can access this report whenever you apply for a financial product as part of the application process.
Individual CCRIS report contains details of all your currently-owned credit cards and loans under your name, total credit exposure (basically the sum of all your cards’ credit limits and the loan amount), and current outstanding balances for all credit facilities (i.e. your cards and loans). This report also has a 12-month rolling record of your repayment history for all credit facilities – if you miss a payment, it’ll be recorded here for all the banks to see.
Missed and/or inconsistent repayments reflect poorly on you as a borrower, and will result in poor credit health and a lower credit score (which is given by “credit bureaus”) which takes information from our CCRIS and other databases and gives an overall “score” of your credit health. In turn, this reduces your chances of being approved for future financial product applications.
As an example, if you’ve been inconsistently repaying your housing loan and try to apply for a credit card or car loan, your chances of being approved are lower than, say, someone who auto-debits their housing loan repayment. In the eyes of the banks, if you can’t repay a loan you currently have, what guarantee do they have that you can repay this credit card or loan that you’re applying for?
If all that sounds really gloomy, there is some good news. Banks are well-prepared to assist borrowers affected by Covid-19, in line with the Government’s Targeted Financial Assistance.
BNM has also announced that anyone who receives financial assistance such as refinancing and/or restructuring loans under the programme will not be recorded on their CCRIS report and thus will not negatively impact your credit score. This is a win-win scenario because you would get immediate financial reprieve from your loan obligations, and with no future consequences when you’re looking to get a new credit card or loan.
Being Your Own CFO
This loan moratorium also presents a good opportunity for Malaysians to take charge of our financial health. No time as good as the present to assess your financial position: find out your current monthly loan commitments, set a new budget for groceries and essentials, have an idea of if/when your salary will be reinstated (if it has been reduced), and know what’s your financial “buffer” (i.e. how long the savings can hold the fort).
For example, if your salary has been reduced, you cannot spend the way you would normally do. Explore your available options. Find higher-paying jobs or explore other income opportunities. Negotiate to work from home to reduce daily spending. Stock up on essentials and groceries when there are good deals. Don’t forget to reward yourself, but within your means.
Assessing your current situation will help you budget accordingly and avoid running out of cash or not being able to repay your monthly loan instalment or credit card statement. Doing this regularly even when the pandemic is over will eventually result in you having a better understanding of your financial health.
Remember, you’re the CFO of your own company (your financial health). When revenue (your salary) is suddenly lower for the foreseeable future, what can you do to ensure the company can survive through it? And when the worst is over, what should you do to ensure you’re ready to power through the next rough patch?
It’s Time To Manage Your Loans
Now that you have a better grasp of your current financial situation, you’re in the best position to speak to your bank about available options regarding your loans and/or credit card debt. During this period, banks will do their best to assist you in resuming your loan repayments. This is also important for the economy, as too many borrowers defaulting on their loans will affect the banking industry.
All banks will offer their assistance, especially to borrowers who have lost their jobs or are suffering from reduced salaries due to Covid-19. As shared by the Prime Minister, this group of borrowers will be eligible for this special assistance:
- A 3-month extension of the loan moratorium for borrowers who lost their jobs in 2020, and have yet to secure a new job
- A revision of the borrowers’ current loan terms if they are on reduced salaries, so that the monthly instalment will be reduced proportionately for at least six months from 1 October 2020
In addition to the special assistance above, banks may also offer borrowers additional options depending on the loan product. Examples: –
- Payment of interest/profit only for a specific period (for selected loans)
- Lower monthly instalments by extending the loan/financing tenure
- Convert outstanding credit card balances into a term loan with lower interest charges
In these extraordinary times, it is crucial to work with your banks so that you have a holistic view of everything on the table: your current loans, the financial assistance being offered and a schedule of your repayments so that you can plan and prioritise your finances accordingly. Remember also that you may not need to seek assistance for all your loans. It’s not a “blanket” assistance.
Don’t Postpone, Act Now
With just a few weeks to go before the end of the 6-month blanket moratorium, this is a crucial period for all borrowers. It’s time to take charge of your financial health and seek assistance where needed. Don’t wait till the final hour – if you think you will have trouble resuming your loan repayment commitments, speak to your bank now so that they can be sorted in time for the October 2020 instalments.
The whole process can actually be done easily and quickly online. If you would prefer to talk through your options in person, many banks are now open on weekends to cater to affected borrowers’ schedules. Visit your bank’s website to check the branch operating hours, or find more information on the targeted repayment assistance via these channels for commercial banks and Islamic banks.
Suraya Zainudin is a writer, speaker and digital marketer. She is also the founder of the personal finance website RinggitOhRinggit.com and curator of the ‘Money Stories from Malaysians’ book series.