By DayakDaily Team
KUCHING, Mar 15: The amended Hire Purchase Act is set to come into force on June 1, introducing a series of reforms to enhance consumer protection and update Malaysia’s hire purchase framework.
In a news report by the New Straits Times (NST), Domestic Trade and Cost of Living Minister Datuk Armizan Mohd Ali said the amendments are part of the government’s broader initiative to strengthen consumer rights while improving Malaysia’s consumer credit ecosystem.
He explained that the amendments will abolish the use of the flat interest rate and the Rule of 78 method, which previously allocated a larger portion of early loan instalments towards interest payments rather than principal repayment.
Under that method, he said, most instalment payments in the early stages of a loan period are used to pay interest, while only a small portion is allocated to principal repayment.
“This situation causes borrowers who wish to settle their loans early to bear a high outstanding balance that does not reflect the actual cost of the loan,” he said to reporters after the National Consumer Day 2026 celebration in Kota Kinabalu today.
Under the amendments, the reducing balance method and the effective interest rate will be introduced for fixed-rate hire purchase loans.
Through the method, interest is calculated based on the current outstanding loan balance, making early settlement of loans more transparent and fairer to consumers.
At the same time, the amendments also support the use of technology, such as digital signatures and the submission of documents electronically, in hire purchase agreements.
“In addition, the amendment introduces the requirement to conduct due diligence in verifying the identity of borrowers as a measure to reduce fraud risks.
“However, a transition period may be given to hire purchase providers that require time to adjust their systems, documentation and processes in line with the new requirements.
“Providers that are already prepared may begin offering hire purchase agreements according to the new amendments once the enforcement date begins on June 1, 2026,” said Armizan.
He added that banking institutions will offer a goodwill discount to customers who choose early settlement under the old financing structure.
“This discount will be given to customers under the old method—the flat interest rate and Rule of 78—who choose to make early settlement, to ensure their outstanding balance is comparable to customers entering new agreements based on the Effective Interest Rate and Reducing Balance Method under the Hire Purchase (Amendment) Act 2026.” — DayakDaily
