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BNM Credit Card Term Loan Conversion : Worth It?

Dr. Adrian Wong
BNM Credit Card Term Loan Conversion : Worth It?

To combat the economic effects of the COVID-19 pandemic, Bank Negera Malaysia just instructed banks to offer the option to convert credit card balances into a term loan.

Find out what are the terms of this credit card term loan conversion offer, and if you should really convert your credit card balance into a term loan!

 

BNM Credit Card Term Loan Conversion : What Is It?

On 24 March 2020, Bank Negara Malaysia announced that they would be implementing additional measures to help borrowers during COVID-19 pandemic.

One of these measures is an offer to convert credit card balances into a term loan for up to three (3) years.

For outstanding credit card balances, banking institutions shall offer borrowers/customers the option to convert their credit card balances into a term loan/financing of a tenure of not more than 3 years and an effective interest/profit rate of not more than 13% per annum. For individuals who have demonstrated signs of repayment/payment difficulty (i.e. unable to meet the minimum monthly repayment for the last 3 consecutive months), banking institutions shall automatically convert their credit card balances into term loans. The requirements in this paragraph shall be observed by banking institutions from 1 April 2020 until 31 December 2020. Banking institutions may also choose to continue extending these options beyond 31 December 2020 in the interests of borrowers/customers.

 

BNM Credit Card Term Loan Conversion : Summarised

Did Not Default For 3 Consecutive Months (Optional)

For good paymasters, Bank Negera Malaysia now requires banks to offer you the opportunity to convert your credit card balances into term loans of not more than 3 years, with a lower interest rate of 13% per annum*.

You can request to convert any credit card balances to term loans, from 1 April until 31 December 2020.

Defaulted For 3 Consecutive Months (Automatic)

For poor paymasters, Bank Negara Malaysia requires banks to automatically convert your credit card balances into term loans of not more than 3 years, with a lower interest rate of 13% per annum*.

The banks are required to do this for anyone who defaults for 3 months in a row, from 1 April until 31 December 2020.

* Note : It is important to point out that Bank Negera Malaysia did not specify whether 13% per annum is flat rate or reducing rate.

 

BNM Credit Card Term Loan Conversion : Worth It?

Excellent Paymasters : Only In Emergencies

If you have always paid your credit card balances in full, you wouldn’t need this option. But don’t dismiss it outright.

We live in uncertain times with the current COVID-19 crisis, so keep this option in mind for emergencies.

If you have a sudden urgent need for cash this year, know that you can pay or get a cash advance using your credit cards.

Then convert that into a term loan if you feel you cannot pay off the amount within 3-6 months.

Good Paymasters : It Really Depends

If you are having cash flow problems, you may be tempted to convert your outstanding credit card balances to the term loan.

While 13% per annum interest is EXPENSIVE, it is still a 5% discount from the current 18% p.a. rate.

However, if you have existing property loans or hire purchase loans, your banks will automatically defer them for six months.

You should use the money freed up by the property loan moratorium and hire purchase loan deferment to pay off your VERY EXPENSIVE credit card debt.

Only if you still have substantial credit card debt after that, should you consider converting them into a term loan.

Poor Paymasters : Do You Really Have A Choice?

If you have been defaulting for more than 3 months, this will be a lifesaver. You now have some breathing space to get your house in order.

That’s why Bank Negara Malaysia is making it AUTOMATIC for you.

Do NOT squander this opportunity by splurging on unnecessary purchases. 13% per annum is just 5% cheaper than the usual rate, and is still VERY EXPENSIVE.

 

Bonus : An Expensive Last Resort Emergency Option

Hidden in their FAQ (below) is a last-ditch emergency option for people in desperate situations…

We do NOT recommend it at all, but if you really have NO OTHER CHOICE, here is something you can consider… as a LAST RESORT.

  1. Pay for your expensive purchase, or obtain a cash advance, using your credit cards.
  2. Convert your credit card balances into a 3-year term loan, at up to 13% per annum.
  3. Immediately apply to defer the new term loan for 6 months.

This method allows you to delay even the monthly payment of that term loan for six more months.

But remember – the interest continues to accrue, and unless the bank uses a flat rate for the term loan, you will end up paying compounding interest.

So this is a VERY EXPENSIVE option, that should only be considered in the MOST DESPERATE situations.

 

BNM Credit Card Term Loan Conversion : Official FAQs

1. I have two credit cards with big amounts outstanding, and I was retrenched in January. I have not been able to meet my credit card monthly obligations since January and am very worried of the consequences. Will I qualify for the conversion of these outstanding balances into term loans/financing? How does it work? Do I need to call my bank to effect this?

If you have been unable to meet the minimum monthly repayment on your credit card consecutively for the last 3 months, your card issuer will convert the outstanding balance into a term loan of not more than 3 years at an effective interest of not more than/financing 13% per annum.

2. I heard that banks will now provide automatic conversion of credit card balances into term loans/financing, but I have a monthly salary of about RM5,500. Will I qualify for this conversion package by banks?

Banks will convert the outstanding credit card balances of cardholders who are unable to meet the minimum monthly repayment consecutively for the last 3 months, regardless of the income levels of the cardholders.

3. Can credit cardholders who have converted their card balances into a term loan/ financing immediately ask for 6 months deferment of loan or financing repayment package?

Yes, they can. Loan/financing repayment resumes after the deferment period

4. If my credit card outstanding balances is converted to a term loan/financing, can I still use my credit card?

Yes, you can continue to use the credit card up to the remaining credit limit after taking into account the balance converted into a term loan/financing. The outstanding balance converted into the term loan/financing is treated as part of the credit card limit. In addition, the monthly term loan/financing instalments will then form part of the minimum monthly repayment amount on the credit card.

 

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