The Dewan Rakyat has passed the Hire Purchase (Amendment) Bill 2025 yesterday, which is aimed at abolishing the flat rate and the Rule of 78 method for fixed-rate hire purchase loans, reported Bernama.
The abolition of the flat rate and Rule of 78 is due to the system being unfair and burdensome to borrowers, minister of domestic trade and cost of living Datuk Armizan Mohd Ali said in his winding up of the debate on the bill, the report wrote. This system will be replaced with the effective interest rate and the reducing balance method, which would be more beneficial, he said.
Under the amendment bill, the effective interest rate (EIR) and reducing balance method will replace the Rule of 78 for greater transparency in loan calculations, reported The Edge Malaysia. The bill also requires lenders to disclose the EIR to consumers when the rate is being marketed, and before the signing of any agreement.
“The rationale behind this amendment is to ensure fairer monthly instalment calculations and interest charges that do not burden borrowers, particularly those wishing to make early loan settlements. With the use of the effective interest rate, it enhances transparency in how hire purchase loans are assessed and marketed, allowing consumers to compare loan packages more accurately and efficiently,” Armizan said.
The minister added that the reducing balance method ensured that interest was charged only on the outstanding loan balance, and that the approach was particularly relevant for early loan settlements when compared to the old system where payments at the initial stage were more focused on the interest rather than the loan principal.
“The proposal related to the effective interest rate will benefit consumers by enabling them to compare the true costs of various loan types and financial products more accurately. Secondly, consumers can plan their finances better as this rate shows the actual amount of interest to be paid over the loan period, and thirdly, it helps identify hidden costs, including compound interest, which could lead to mounting debt,” Armizan said.
Apart from the abolition of the flat interest rate and the Rule of 78 method, the amendment also allowed for the use of modern technology in hire purchase agreements and updates, Armizan said when tabling the bill for its second reading.
In addition to removing the flat rate and Rule of 78, the amended bill proposed an amendment to Section 6B relating to the adoption of a new method for calculating term charges, which is aimed at providing a timeframe for owners to notify hirers of any changes to their financial obligations following a review of the effective interest rate, said the minister.
Although the bill has been passed, it will not take effect immediately as there is an 18-month transition period for the bill amendment. However, several MPs have called for the ministry to shorten the transition period and expedite the implementation of the amended bill, The Edge Malaysia reported.
Kota Melaka MP Khoo Poay Tiong proposed that the grace period be reduced to between six and 12 months, reasoning that financial institutions already have established computer systems for housing loans that use the reducing balance method.
Looking to sell your car? Sell it with Carro.
Double thumbs up from me
Except EV, in an accident your new ride might just be a total loss and your stuck with paying it and another car.
Finally… Interest should be changed on the outstanding amount..
it’s good approach. but banker being banker, they will up the interest to preserve the same amount of ‘char siew’ they have been enjoying all this while. same can also be said for insurance company… look at how we are being squeezed by the medical insurance. it’s up because the medical cost has increased…but then, each policy has a limit cap right? regardless of the cost,any thing beyond the limit is born by the insured. limit stays the same but premium up every year…yeah, it’s the same ‘char siew’
Yes，mind you, the various banks will take the maximum 18 months grace period to process the changes.
Banks are licensed blood sucking loan sharks.
No one force you to take loan from them also..but can you afford the car without loan?…LOL
This does not apply to islamic loans if im not mistaken ,no?
No because it is not relatab
Ask the palestinian
Banks will just increase the interest rate and offset the difference. You will also end up paying more interest earlier in the loan term leading to less interest discount for early settlements compared to fixed interest rate.
Banks win in this deal.
its forbidden by new law for banks to front-load the interest.
NOW you pay INTEREST only the first few Years
AFTER 3 years ANYTIME can paid off the LOAN
I thought fixed loan and flexi loan has its own advantage, and flexi loan refer to interest based on outstanding, am I wrong?
Now, what are we changing…?
I had car loan either fixed rate or flexi rate. I had options to choose.
First of all, taking car loan which also includes the exorbitant excise duty is cruel already lorrr.
Banks being the scammers that they are, just like insurance companies, I ain’t holding my breath for any meaningful benefits to the consumer
I would argue insurance companies are even bigger scammers. Premiums up only. At least Interest rates got up and down
Banks will just collude and up the interest rate so you end up paying the same as flat interest rate. EIR will be the same
All things better with MADANI.
It should be flat across the board applicable to all types of loans i.e. personal, housing, credit etc.
so car ownership will get cheaper and now more cars on the road?
I wish to see more cars on the road to increase the congestion. more cars, more progress.
Actually some banks already offer reducing balance car loan this year. I took my new car this year with this reducing balance loan. I always pay more on car instalment so car SA introduce me this scheme. This loan scheme can help me save more on interest paid. Straight line method is not saving much even if I paid more every month.