What clarifies the confusion over accrued interest on deferred loans?

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Bank Negara Malaysia Clarifies Interest Accrual on Deferred Hire Purchase and Islamic Financing Loans

Bank Negara Malaysia (BNM) has issued a clarification to address confusion and anxiety surrounding the six-month moratorium for hire purchase (HP) loans and fixed-rate Islamic financing. The central bank affirmed that the payment deferment remains automatic for these loan types, but an additional procedural step is now required to formally incorporate the changes into loan agreements, a clarification that also addresses concerns about accrued interest.
Automatic Deferment Remains in Place

The payment deferment for hire purchase and fixed-rate Islamic financing continues to be automatic for borrowers. This means that individuals with these types of loans who had their payments automatically deferred since April 1, 2020, will maintain this benefit until September 30, 2020. This automatic provision is intended to provide continued cash flow relief amidst the economic impact of the Covid-19 pandemic.
Procedural Step for Agreement Updates

A necessary additional step is required to legally implement the six-month deferment. This procedure is mandated by the Hire-Purchase Act 1967 and Shariah principles, and it allows for the incorporation of revised payment schedules and/or amounts into the existing loan or financing agreements. This step is essential for formalising the impact of the deferred payments on the loan terms.
Interest Accrual Clarified

The confusion regarding accrued interest on deferred loans has been specifically addressed by BNM. An illustration in an initial version of the FAQs was misinterpreted, leading to the perception that interest charges on deferred payments would be waived. BNM clarified that its illustration was not intended to preclude interest charges that accrue on the deferred loan amounts. For instance, a RM50,000 HP loan with a 2.71% annual interest rate and a five-year remaining tenure, if deferred, could see a monthly installment increase of RM19, resulting in an additional RM1,130 in total interest over the loan's life.

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What clarifies the confusion over accrued interest on deferred loans?

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