Banks in Malaysia will start giving discounts to customers who choose to settle their existing fixed-rate hire-purchase loans early. This will begin once the Hire-Purchase (Amendment) Bill 2025 comes into force in 2026. The change is meant to give fairer treatment to customers with older loan agreements.

What The Updated Law Changes

The amended law will remove flat-rate calculations and the Rule of 78 method for new hire-purchase loans once it becomes effective. These methods have been criticised because they usually load more interest charges at the start of the loan. This can make early settlement more costly.

The new rules aim to create instalment and interest calculations that are clearer and fairer. Hire-purchase loans are commonly used to finance cars, commercial vehicles, and machinery, letting customers use the item while paying for it in instalments.

These updates sit alongside Malaysia’s wider consumer credit reforms under the Consumer Credit Act 2025, which sets new standards for non-bank credit providers and strengthens borrower protections.

How The Early-Settlement Discount Works

Banks will offer a goodwill discount to customers who settle their existing fixed-rate loans early. This helps older agreements receive treatment that is closer to the updated rules for new loans.

The discount amount will depend on the customer’s current agreement. Factors include the type of rate used and when the early settlement is requested. Each bank will calculate the amount differently, and customers will be told their exact discount when they apply.

The programme covers individuals and micro or small businesses with fixed-rate hire-purchase agreements signed before the amended law takes effect or during its 18-month grace period. Accounts must not be more than 90 days overdue, under legal action, under a repossession order, or undergoing restructuring, rescheduling, or formal debt management.

When The Discount Programme Starts

The programme will begin once the amended legislation is officially enforced. It will continue until all affected fixed-rate loans either reach maturity or are settled early, which may take up to nine years.

Customers who choose to pay their instalments until the end of the loan will not be affected by the Rule of 78 under the revised law and do not need to take any action.F

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