What To Know About Personal Loan Repayment Extensions

Personal loans are a fantastic way to borrow some extra cash in a relatively short period of time. However, you will have to pay it back eventually. If you miscalculated your repayments or were faced with sudden and unexpected bills, then you might find yourself unable to pay up in time.

When such financial challenges arise, knowing your options is key to maintaining stable financial health. This is why every Malaysian should know how personal loan extensions work, and why they matter.

What are personal loan extensions?

In a Malaysian context, personal loan extensions are otherwise known as loan deferment or loan moratoriums. This arrangement is invaluable as it allows individuals to temporarily put a pause on their loan repayments. This offers some much-needed respite for those who are experiencing unexpected financial difficulties or crises.

The Malaysian government declared a blanket moratorium on loans during the early days of the COVID-19 imposed lockdowns. However, you could only really get these loan moratoriums up until 2021.So is it still possible to get an extension on your loan payment today? Before we get into that, let us take a look at how loan extensions work.

How do these extensions work?

Loan deferments in Malaysia are rather straightforward. Borrowers will agree to temporarily postpone their loan payments for a specific duration. This reprieve can be especially helpful for those who have suffered from unexpected misfortune.

For example, if you get a one-month deferment and originally planned to repay your loan in February 2024, you would now have to pay it in March 2024 instead. Just be aware of all the terms that come with said deferment. In particular, you need to know precisely when your deferment officially begins and when it ends. 

After the end of a borrower’s deferment period, a borrower who is still experiencing financial problems can contact the lender for another deferment. These deferments are not all-powerful either. They might be limited in some lenders’ policies, while some may only be granted on a case-by-case basis. For example, your lender may only grant deferments at monthly intervals. so you will need to keep in touch with them each month until you can make payments again or find another solution.

How do loan extensions help you?

Temporary reprieve

As mentioned previously, the main benefit of a loan deferment is temporary relief for those facing financial difficulties. It postpones your loan repayment date, granting an immediate lifeline for those suffering through times of financial strain and giving them some extra time to sort out their finances.

Credit score preservation

When done properly, a loan deferment should not have any effect on your credit score. However, you will need to ensure that your financial institution correctly reports the deferment to the credit bureau just to be safe. However, do note that any missed or late payments prior to the deferment may have already lowered your credit score.

In addition to this, after the financial devastation wrought by the COVID-19 pandemic, all loan extensions will result in the loan being restructured. This will be reflected in credit reports by a “C” designation, meaning that you have received the necessary financial assistance and had your loan restructured. It should be noted that the “C” designation could potentially affect your ability to apply for new loans.

Additional interest

While loan deferments can offer you some much needed financial relief, there are some potential downsides that come with it. For one, your loan interest will typically continue to accumulate even during the deferment period. 

As such, you may end up having to pay more interest over the life of your loan. Always make sure to consider the total cost of borrowing and factor that into your plans.

Early repayment considerations

Do take note that loan tenures may be extended to accommodate the deferred payments. This means that you might have to make payments for longer durations once the extension period concludes.

Increased monthly payments

Depending on the terms of your extension, the borrower may end up with adjustments to their monthly payments following the deferment period. This is often made to compensate for deferment amounts. Remember to be prepared for an increase in monthly payments if your terms stipulate so.

Can you still get a personal loan extension today?

As mentioned earlier, the government mandated loan moratorium that came as a result of the COVID-19 pandemic ended in 2021. As such, it does not seem that financial institutions would be willing to hand out bank extensions. You can still ask your bank about it, but banks will likely not be open to handing them out under normal circumstances.

This does not mean that loan deferments are an impossibility. Under very specific circumstances, banks are willing to offer repayment deferments to assist their customers. These can include things such as flooding or other natural disasters. 

Apart from that, banks are generally willing to lend some advice or help if a borrower has difficulty repaying their loans. While they may not grant a loan repayment deferral outright, they might help to restructure the loan, which generally does come with some sort of deferment. Of course, this is usually done on a case-by-case basis.

Alternatives to repayment extensions

If you are struggling to cope with loan payments, loan deferments are not the only solution you can look towards. Here are a few alternate methods you can try:

Loan refinancing

Loan refinancing involves replacing your current loans with a new one which preferably has lower interest rates and/or extended loan repayment tenures. When done right, it can drastically reduce your financial burden and make loan repayments more manageable over time.

Modified repayment plan

If you are looking to adapt your current loan without seeking out an extension, you can try discussing a modified payment plan with your financial institution. The negotiations may involve tweaking the repayment schedule, decreasing the monthly repayment amount, or temporarily suspending the accrual of interest.

Seek professional help

Debts and loans can accumulate quickly if you are not careful. After a certain point, it might be easier to simply hire a professional financial advisor or counselor to assist you with your money matters. These professionals can help you to create a comprehensive budget, prioritise expenses, or devise effective debt management strategies. Their guidance may be what you need to help guide you back onto a more sustainable path.

You can also try getting help from the Credit Counselling and Debt Management Agency (AKPK). This agency was set up by Bank Negara to help individuals take control of their financial situation and gain peace of mind that comes from the wise use of credit. AKPK provides financial education to people of all ages in Malaysia and also provides expert guidance on loan repayments for registered businesses, partnerships and sole proprietorships.