LETTERS: News reports have highlighted the issue of whether banks should offer interest-free loan moratoriums to customers during the Covid-19 pandemic.
I would like to share two strategies when it comes to approaching loans. As a consumer, bankers advise that you settle your loan as soon as possible to reduce the total interest payable to banks.
From a monthly perspective, looking at the total interest paid at the end of the financing tenure, the figure will be large. Hence, the first strategy is to settle loans early.
Banks are doing well because as a business, they have been successful in addressing the opportunities posed by the pandemic, leveraging on their strength while absorbing the threats and addressing their weaknesses.
The second strategy is simply to not take a loan! Start with saving for all your purchases. As for cars, consider buying used as they cost less.
Should you take hire purchase loans, settling the loan in a lump sum will still achieve a reduction in interest. Otherwise, the accrued interest will be a big figure too when it is deferred until the end of the tenure.
This is simple mathematics. There were also proposals for banks to offer interest-free moratoriums as a form of corporate social responsibility.
Banks are assisting customers by not compounding the accrued interest during the six-month moratorium period. This doesn't happen in a business-as-usual scenario.
Should banks choose not to offer a moratorium, rescheduling a loan during a normal period will lead to higher interest rates, and if payments are not forthcoming, banks reserve the right to exercise their full legal right to repossess the collateral.
Banks are not doing that now. Trying to get a loan to cover the loan moratorium period will lead to high interest rates too as the new lender will view this group of customers as very high risk, compared with existing banks that are offering the moratorium which maintained their risk profile as status quo.
Don't resort to going to loan sharks. Having read about how loan sharks deal with their non-paying-clientele, it is best to work with institutions that are strictly regulated by Bank Negara Malaysia, like banks.
Yes, banks can definitely do more in their community programmes, with the white flag movement gaining momentum. Doing good for the community is one thing, asking them to compromise their business model is a different thing altogether.
While penalising faithful customers who diligently pay the banks on time, interest-free moratoriums come with a cost that will be borne by depositors, shareholders and the government. The impact will be reduced interest, dividend or taxes paid for the nation's development.
In a worst case scenario, a bank-run is not impossible when banks are seen to be unstable and unable to be trusted as the custodian of public funds. That is why it has to be a conscious business decision.
For any business entity, there is the cost of doing business, from electricity to water, rental for premises to licensing, overheads and others, and this applies to banks too.
If all your customers ask you to waive payments, would you agree? No, as your business will fail. And banks failing have far ranging repercussions for a nation.
W.H.
Petaling Jaya, Selangor
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times