Banks will convert outstanding credit card balances into 3-year term loans with a 13% p.a. interest rate to assist those who are in financial difficulty due to the Covid-19 outbreak. This step is one of the measures highlighted in Bank Negara Malaysia’s announcement regarding repayment deferment measures for households and SMEs.
Individuals who are unable to meet the minimum monthly repayment for 3 consecutive months will have their outstanding credit card balances automatically converted into term loans or financing. The term loan or financing will have a tenure of up to 3 years with an effective interest or profit rate of 13% p.a. and the cardholder can pay off the loan in fixed monthly instalments. You may still continue to use your credit card up to the remaining credit limit after taking into account the balance converted into the term loan.
The interest rate of 13% p.a. under this term loan is lower than the usual 15–18% p.a. that is usually charged on unpaid credit balances, and the monthly instalments make it easier for cardholders to manage their repayments. Moreover, cardholders who have converted their card balances into a term loan can then immediately ask for a 6-month deferment from their bank under the loan deferment measures announced by Bank Negara.
In 2019, banking institutions introduced a similar repayment programme known as Auto Balance Conversion (ABC). Eligible credit cardholders who have not made a full payment for their outstanding balance for the past 12 months and with average credit repayment of not more than 10% of the outstanding balance over the past 12 months would be automatically enrolled for ABC. The ABC programme shares similarities with the current measure being offered due to the Covid-19 pandemic; outstanding balances would be automatically turned into a 3-year term loan at 13% interest per annum.
However, for the current term loan solution being offered, automatic conversion will be done when minimum monthly repayments are not reached for 3 consecutive months, instead of the 12-month requirement under ABC. Furthermore, ABC is only available to those who earn not more than RM5,000 per month – in the current instance, banks will initiate the conversion for those who fulfil the criteria regardless of income level.
Following the directive by Bank Negara, banking institutions will be carrying out the automatic conversions for relevant cardholders during the period of 1 April 2020 until 31 December 2020. The banks may also choose to continue extending this option beyond 31 December 2020 in the interest of their customers.