This is for all you diligent people whom, like me, are faithfully paying off your debts on time.
PTPTN had recently announced an update on its plan to convert the existing 3% to 5% administrative charge (better known as 'interest rate') study loans to 1% repayment schemes based on the islamic finance concept of "Ujrah". Safe to say, I will not elaborate, because you are not interested. You are interested in the money you need to repay your dear government, the goody2shoes that you are, and that, my friend, you will get.
The public and the media have all placed emphasis on the interest rate differential and there has been heavy traffic on http://www.ptptn.gov.my due to the torrents of former students applying for this conversion. All this, without truly understanding what the conversion is really about. With that said, let's get down to the nitty-gritty. You will want to know if you really are better off Ujrah-nizing your loan.
To begin, let's lay out the conditions that set the basis for the loan conversion (despite it being on their FAQ in their website ( http://www.ptptn.gov.my/gateway/docs/FAQ-UJRAH2.pdf ), i know you won't want to read it in Bahasa Melayu, all you urbanised bas3rds):
1. Eligibility: For those who have an existing loan balance as at 1 June 2008, with the exception of those who have had legal action taken against them with respect to the loan, and those who have breached the loan terms and conditions in any way. So, again, this is for you diligent loan payers.
2. Interest: Calculated based on: Loan balance as at 1 June 2008 X 1% Ujrah payment X Tenure (years)
That's all you are told in their current website, but is that all you need to know? The rest of the info in PTPTN's existing FAQ pertains to some obvious technicalities to which answers make sense (a.k.a. no-brainers, go see for yourself.)
Firstly, if you have any inclination towards finance OR you've bought a car and bothered to understand your repayment schedule, you'll notice that the interest is calculated as a lump sum amount based on a backdated balance. In other words, your PTPTN Loan, which is a reducing balance loan per se, like a housing loan/mortgage, is now being converted into a hire purchase.
Secondly, the calculation provides one multiplier based on tenure. What tenure?!
A little digging reveals the old 'pekeliling' (better known as a circular) that PTPTN had issued in 2008 detailing the Ujrah-nizing somewhat. Before you ask: Yes. This started in 2008. It has yet to be implemented. Hence my earlier reference to this shenanigan as an update. The link to the circular is here ( http://www.ptptn.gov.my/docs/Pekeliling/2-2008.pdf ).
Tenure is based on the remainder of your existing loan's tenure. Unless you're applying for a loan then it's based on a schedule.
Alright, with the facts down, We get to the numbers. Let's just use mine for example:
My tenure starts from 1 December 2007. As at 1 June 2008, that leaves me with 173/180 months left. The balance I have on 1 June 2008 is RM38,031.29. At this rate, my repayment rate is RM271.06 per month.
With the Ujrah conversion, my new balance, including the lump sum Ujrah of 1%/12 X 173 X RM38,031.29 = RM5,428.84, is RM43,514.13, and translates to RM251.53 per monthly repayment.
Save RM19.53 per month? Hell YEA! for 173 months, that's RM3,379.20! w00t!
But... is it better, really?
Within the next 24 months, I envision myself earning at least double of what I do now. So I plan to make higher repayments then. Per the old loan schedule, this will reduce the principal and in turn, the future interest charged. But per Ujrah, it doesn't matter if I make the payments earlier or later. I pay the same amount of interest anyway.
.....bah I just explained the main difference between a hire purchase loan and a housing loan.
But this is for the benefit of ex-students, and those who don't understand.
Bottom line, if you're sticking to the schedule or if you're dragging, you'll be better off with the conversion. Capische?
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