Bank Negara Increases RPO to 2.25% – Will Your Car Loan Payment Increase? – Knowledge
It was recently announced that Bank Negara Malaysia has raised the overnight rate (OPR) by another 25 basis points to 2.25% after a jump to 2.00% in May from a historic low of 1.75%. But what does this mean for our wallets… and our car payments?
A statement issued by the central bank said the decision by its monetary policy committee “has been taken as Malaysia’s economic activity has continued to strengthen in recent months. This was signaled by export and retail spending indicators, improving job market, as well as improving revenue outlook,”
“Amid the positive growth outlook for the Malaysian economy, the MPC has decided to further adjust the degree of monetary accommodation. This is consistent with the MPC’s view that the unprecedented conditions that necessitated an OPR historic lows continued to decline.
Because OPR is known to have widespread financial and economic effects, the big question for us – being involved with Carlist.my – is will this have an impact on our car loans?
Apa Itu OPR?
Simply put, OPR is more commonly referred to in the banking world as an overnight rate, used to regulate large banks that borrow/transfer money between themselves to maintain balance and liquidity because, due customer withdrawals and deposit activities, they experience a shortage or excess of liquidity at the end of the day.
As OPR affects the Base Lending Rate (BLR), fluctuations here will ripple through macro and micro level financial activities and transactions, such as fixed deposit rate, foreign exchange rate, interest rates short-term and long-term interest rates.
A lower OPR generally means lower interest rates across the board as banks make the necessary adjustments, which can encourage consumer spending, borrowing activities (borrowing, for example) and generally stimulate growth. ‘economy.
Banks can theoretically absorb the increase in OPR since it will only be charged between financial institutions and is not directly presented to customers, but of course that will not happen.
A higher OPR, like the one we just experienced, has the opposite effect and results in higher interest rates due to the higher cost of borrowing, but is also seen as a sign of economic optimism . This was used as justification by Bank Negara in the previous statement excerpt, which continues:
“The MPC will continue to assess evolving conditions and their implications for the overall outlook for domestic inflation and growth. Any adjustments to monetary policy going forward will be measured and gradual, ensuring that that monetary policy remains accommodative to support sustainable economic growth in an environment of price stability.
Impact on leasing loans
Homeowners are the largest group affected by any change to the OPR, as home loans are most often taken out with a variable (floating) interest rate policy. There are various reasons for this, but they are mostly due to: (1) home loans are much longer term and span decades, (2) involve much larger sums of money, and ( 3) Appreciate assets.
Variable rate mortgages tend to be more attractive to buyers due to lower initial repayment, reducing the barrier to home ownership The hope is that the individual’s financial situation improves as repayments increase, or the asset appreciates enough to cover or exceed the balance due to the bank.
It is the opposite for car loans (hire-purchase), where the majority of buyers opt for fixed-rate financing because it involves a much shorter duration (3-9 years) and a property that depreciates. The majority of variable rate lease-purchase agreements are intended to attract first-time car buyers. Are you one of them?
Since fixed rate loans are not charged on the outstanding balance against an underlying benchmark or index, they are much less sensitive to these fluctuations in the overnight rate (and the BLR).
Similarly, hire-purchase agreements (the most common type of car loan) have their interest paid up front in addition to the balance and down payment. Ownership of the item/merchandise is therefore generally not given to the buyer until all payments have been made.
However, as mentioned, some hire-purchase agreements use variable rate financing, which would mean that before long you would need to pay a higher monthly installment following an increase in the RPO, which has to again an impact on the base lending rate (BLR).
The short version is this: you can rest easy if your lease-purchase agreement was based on fixed rate financing.
However, if you chose variable rate financing because of its lower (lower) initial repayments, you will most likely have to start paying more each month. Next time pay cash lah. Beli motorcycle i. Senang!