Eleven financial institutions and hire purchase providers are now operating under Malaysia’s revamped hire purchase framework, after the Hire Purchase (Amendment) Act 2026 came into force on 1 June. Domestic Trade and Cost of Living Minister Datuk Armizan Mohd Ali confirmed the rollout on 31 May, and said a second phase covering more providers is expected in September.

The Flat Rate And Rule of 78 Are Gone

The amended Act removes two features of the old hire purchase system, the flat interest rate and the Rule of 78.

A car loan has two parts. There’s the principal, the RM80,000 you borrow to buy the car, and there’s the interest, what the bank charges for lending it to you. Every monthly payment goes towards both, and it’s how the bank works out the interest that the new law changes.

Under a flat rate, the bank worked out the total interest up front, based on the full RM80,000 you borrowed, and that figure never changed. However far through the loan you were, the interest was still calculated on the original RM80,000, never on the smaller amount you had left to pay.

The Rule of 78 applied if you wanted to settle the loan early. It counted most of the interest as belonging to the loan’s early months of repayments, so settling early got you only a small rebate. If you paid a five-year loan off after two years, you’d still owe most of the interest for all five years.

The reducing balance method is fairer, tying the interest to the principal you still owe. If your principal is paid from RM80,000 down to RM60,000 the interest is calculated from the RM60,000 remaining to pay. The more principal you pay off, the less interest you pay, and settling early does not carry a penalty.

With the eleven lenders who are offering loans under the new system, two things now come as standard. The first is an effective interest rate, or EIR: the real yearly cost of borrowing. The second is a loan schedule, a table that breaks each monthly payment into the part that pays down your principal and the part that pays interest.

The two methods differ in three ways:

	Old System	New System
Interest	Charged on the full original amount for the whole tenure	Charged on the principal you still owe
Early Settlement	Small rebate only, as interest counts as earned early under the Rule of 78	Interest stops on the principal you have repaid
Cost Shown To You	Flat rate, which looks lower than the true cost	Effective interest rate, plus an amortisation schedule

If you use the full term of a loan you’ll pay roughly the same total interest either way. If you pay off your loan early, in effect, you’ll only pay interest for the time you borrowed the money, the principal.

Not All Providers Are On The New System Yet

Only 11 providers were confirmed ready on 1 June, and the ministry hasn’t named them. Armizan told borrowers to check with their financing provider before signing any new agreement. Providers still updating their systems have until 31 March 2027 to switch over.

The Hire Purchase (Term Charges) Regulations 2026 [P.U.(A) 171/2026] came into force on the same day. They also permit electronic signatures and digital submission of hire purchase documents, which should speed up the paperwork at the dealership.

Existing Borrowers Can Ask For Goodwill Discounts

Old loans don’t move onto the new system automatically, but there is still hope for existing borrowers. Member banks of the Association of Banks in Malaysia (ABM), the Association of Islamic Banking and Financial Institutions Malaysia (AIBIM), and the Association of Development Finance Institutions of Malaysia (ADFIM) have agreed to offer goodwill discounts to borrowers who settle early.

Each bank sets its own discount from the terms of your agreement, aiming to bring your outstanding balance closer to what it would have been under the reducing balance method. If you’re thinking of settling early, ask your bank for an early settlement quotation that includes the goodwill discount.