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PTPTN: This Is Why You Shouldn't Convert 3% Conventional to 1% Ujrah

Updated 11 Nov 2019 – By Nisya Aziz

Most of us (if not all), who took the PTPTN study loan before 2008 and have yet to settle the bill would have received an email or a call from PTPTN by now to convert the 3% conventional service charge for existing loans to the 1% Ujrah (it’s an Islamic term for service charge) payback scheme. Now, this may seem like a good deal but what is it exactly?

What are the differences between conventional and Ujrah?

Criteria Conventional Ujrah
Interest Rate 3% service charge of the current reducing balance. 1% service charge of the latest outstanding balance (when you officially converted to Ujrah).
Total Monthly Cost The monthly service charge is variable and will increase/decrease depending on the amount and consistency of the payment (compounded rate). Monthly service charge is the same on a monthly basis (fixed rate).
Total Monthly Repayment Monthly instalments increased progressively during the first 5 years of the repayment period. The monthly instalments are the same on a monthly basis (flat rate).
Payback Period Most cases are within 10 years but can be shorter depending on the monthly repayment amount. It takes a longer time (up to 20 years) and it’s fixed.
Restructuring/rescheduling of PTPTN loan NOT ELIGIBLE. You need to convert to Ujrah in advance if you intend to make restructuring/rescheduling of the loan. You are ELIGIBLE to apply for restructuring/rescheduling of the loan.
Principle Non-shariah compliant Shariah compliant

Oh, that means it’s better to convert to Ujrah because the interest is lower, right?

Well, not necessarily.  With just a glimpse, it does look like Ujrah is a better option because it only charges you 1%. However, there’s a catch! Your monthly repayment will be less than the 3% conventional, but you’re bound to its terms and conditions, which is the fixed service charge and monthly repayment. How’s that so? 

Let’s take a look at some points that you need to consider before converting to Ujrah.

1. Interest Calculation

a) 3% conventional

It will be charged based on your remaining principal amount or another way to put this is it depends on how much of the loan you have left at the end of each year. This is similar to the home loan concept.

For example: 

Conventional Charges = (loan principal amount x 3%) / 12 months
                                          = (RM28,000 x 3%) / 12 months

                                          = RM70

What’s great about this scheme (although it’s slightly expensive to pay monthly), is that the faster you settle the loan, the less interest you pay. Take a look at the sample below:

b) 1% Ujrah

This is calculated based on the outstanding balance when you applied for the Ujrah loan. It will be known as the new loan principal. Do take note that it will include the arrear amount (previous overdue debt).

For example:

Current Outstanding Balance = loan principal amount + arrear amount

                                                        = RM28,000 + RM394.79
                                                        = RM28,394.79

And, since Ujrah uses fixed rate interest calculation (similar to hire purchase/ car loan), you’ll be paying the same figure (fixed rate) every month even though your principal amount reduced (similar to hire purchase/car loan).

For example:

Ujrah Chargers = Current Outstanding Balance x 1% a year x payback period

                              = RM28,394.79 x 0.01 x 15 years 
                              = RM4,259.22

Total Payment = RM28,394.79 + RM4,259.22
                            = RM32,654.01

Monthly payment = RM32,654.01 / 180 months 
                                  = RM181.41

As you can see, differences are very jarring and for argument’s sake, you’re paying way lesser with the Ujrah 1% scheme. However, do take note that even if you’re clearing your payment earlier you still need to pay the service charge that has been set (like the car loan). And, if you skip the monthly payment, you will be imposed with an additional 1% penalty as stated in the agreement below.

That being said, it would be quite impossible for you to skip the payment as you will need to make the payments through salary deduction - which means there’s no running away unless you’re jobless. 

2. Payback period

Another thing that you need to consider is the payback period because it’ll affect the amount that you’ll be paying monthly. If the payback period is longer, your overall amount to pay will be higher too.

You can check this by using the formula below and detailed calculation as above.

Ujrah Chargers = Current Outstanding Balance x 1% a year x payback period

You may refer to the 1% Ujrah payback schedule as below:


Okay... so you’re saying I should just stick with my current conventional loan?

This depends on your financial capability. Generally, the compounded rate calculation will result in a lower total interest rate compared to fixed interest calculation for the same amount of interest charged by PTPTN. This is great if you want to settle your loan ASAP and it’ll help you save some money because you're not bound by the payback schedule.

Recently, the Youth Council of Malaysia (MBM) has appealed for the government to abolish the Ujrah system in the presentation of Budget 2019. MBM President, Jufitri Joha said the Ujrah system was seen as a burden for creating additional debt to PTPTN borrowers. He shared that one of the borrowers had met him with a stroke of up to RM9,000 due to the said system, which burdens most of those who want to start a career and build a life.

So, how now?

That being said, if you find yourself struggling to have the discipline to pay every month, prefer to pay a fixed monthly payment and don’t mind the paying it long term and more - 1% Ujrah is the way to go. 

Other than that, don’t forget to read the terms and conditions before signing the contract because…

It means that PTPTN can change the service charge percentage when they feel like it and there’s nothing you can do about it. Pretty tricky, don't you think? So, be sure to make the best decisions that fit your financial means.

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