Why cashflow relief is a better solution compared to a term extension for customers impacted by COVID-19

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While the country continues to observe the national lockdown, credit active consumers whose income has been negatively impacted by COVID-19 will be exploring various measures to ensure that they can stay up to date on repayments for personal loans, overdrafts, credit cards, vehicle finance and home loans.

In March, FNB announced its cashflow relief measures to help individual personal banking customers who were in good standing before their finances were negatively impacted by COVID-19. The Bank’s solution covers customer’s repayments across all products they hold with FNB including credit, insurance and FNB Connect products. In addition to the cashflow relief, the Bank is also assisting its customers with credit insurance claims where this is a possibility to cover their credit premiums for a period of up to 12 months.

Raj Makanjee, CEO of Retail for FNB says, “Our aim is to ensure that all our customers can continue keeping their financial affairs in order through this uncertain time. For our individual personal banking customers who do not have credit insurance or perhaps only have partial cover, the Cashflow Relief Plan gives customers a payment break from their monthly instalments and premiums for 3 months.  During this time, we will pay the customer’s premiums on their behalf, freeing up their cashflow to cover other expenses while keeping their existing facilities and credit profile intact.”

Why cashflow relief?

Doret Jooste, CEO of FNB Retail Money Management says, “The solution is designed to be less expensive compared to the traditional payment break with a term extension, where a customer could potentially be paying ‘interest upon interest’, fees are still levied during the break and their repayments on the longer term will be based on the conditions of the existing agreement, for example interest rate and fees.  In the long-term, the total cost of credit for a payment holiday with a term extension is significantly higher than a cashflow relief plan.”

How does the Cashflow Relief Plan work?

Instead of extending the customer’s term, FNB will allow the customer to repay the cashflow relief amount separately post the payment break, with the following benefits applicable on this Cashflow Relief account:

  • Zero fees;
  • Flexible repayment period;
  • Ability to settle this amount earlier with no penalties;
  • The interest rate payable is prime, which could be a lower interest rate than what the customer is currently paying on their unsecured credit products such as a personal loan, credit cards or overdraft or other unsecured credit facilities;
  • Repayment will only start once the 3-month relief period is over.

“These benefits bring flexibility and real savings to our customers on the cost of their credit in the long term and is specifically designed to help our customers minimise the impact of COVID-19 on their finances.  We encourage customers to be thoughtful about the solutions they sign-up for during this difficult time, especially those who do not have insurance on their credit products,” adds Jooste.

An example of the total savings that a client realises through using the cashflow relief with FNB instead of a term extension is illustrated below:

Implication on a 3-month payment break with a term extensionHome LoanPersonal Loan
Current BalanceR500 000R100 000
Rate7%18%
Remaining number of payments20448
Monthly premium/payment-R4 198-R 2 937
Payment Break number of months33
Balance after Payment BreakR508 801R104 568
New remaining number of payments21252
Extra payments needed i.e. number of months added due to term extension84
Additional cost of credit paid due to term extensionR29 509R9 636
Customer pays a total of:R885 963R150 636
   
Implications of 3-month payment break with Cashflow Relief PlanHome LoanPersonal Loan
Current BalanceR500 000R100 000
Rate7%18%
Remaining number of payments20448
Monthly Premium/Payment-R4 198-R2 973
Payment break number of months the bank pays client’s instalment on existing loan on the Cashflow Relief Plan33
Balance on existing loan after payment break with Cashflow Relief PlanR496 133R95 622
New remaining number of payments on existing loan20145
Extra payments needed on existing loan i.e. number of months added due to term extension00

 

Balance after payment break on Cashflow Relief Plan-R12 595R-8 812
Rate on Cashflow Relief Plan*7.75%7.75%
Term**6060
Monthly Premium, i.e. payment on Cashflow Relief PlanR254R178
Additional cost of credit paid due to Credit Relief PlanR2 638R1 845
   
Customer pays a total of (on remaining term of underlying agreement)R843 859R132 187
Customer pays a total of (on relief plan)R15 233R10 658
   
Savings to client using Cashflow Relief Plan instead of term extensionR26 872R7 790

 

*Prime rate charged on Cashflow Relief Plan
**Flexible period, no penalties on early settlement

Without doing the calculations on what the exact costs of a term extension will be, customers can easily interpret the term ‘extension’ as ‘skip 3 payments now and add 3 payments at the end’ and assume the total cost of credit will not change significantly.  What the above example shows is that the customer could be paying more than 3 months’ worth of instalments due to a term extension. 

“The lower interest rate and zero fees on the FNB Cashflow Relief Plan amongst others results in significant savings for the customer.  Customers can use these savings to help manage their cashflow, pay for other critical expenses or pay off debt earlier. Being able to give our customers much needed help with managing their money is the reason we have designed the solution in this way.

“In addition we are also sharing individualised tips with customers, showing them where they are spending and how they can potentially save on fees and leverage our partners and offerings for better deals on their grocery, fuel and telco spend to optimise their cashflow.  Our eBucks rewards programme is a great way for our customers to stretch their money by using eBucks to earn and spend on essential goods at Checkers, Shoprite, Clicks and a myriad of other eBucks partners.  Clients are also able to track their spend on the FNB App on the nav>>Money section and see if they have enough money to cover upcoming debit orders.  From next week the Money Coach functionality will also be live on nav>>Money – giving our customers even more important money management information and guidance during the COVID period.  FNB customers who wish to get more information on our relief measures can access this information under the COVID-19 icon on the FNB App,” concludes Jooste.

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