Kuala lumpur: The Hire-Purchase (Amendment) Act 2026 (HPAA) continues to allow hire-purchase providers to offer both fixed-rate and variable-rate loans, said Bank Negara Malaysia (BNM). The central bank stated that customers will retain the ability to choose between a fixed-rate or variable-rate hire-purchase loan, ensuring options remain flexible under the new legislative framework.
According to BERNAMA News Agency, under the amended Act, both loan types will use the reducing balance method for interest calculation, applying it to the customer's outstanding principal balance. This means that once a customer settles the outstanding balance, no further interest charges will accrue, making waivers or rebates unnecessary. The details were outlined in the Consumer Guide: Five Key Highlights of the Hire-Purchase (Amendment) Act 2026, which was released on the BNM website today.
As reported, Malaysian banks will implement significant amendments to hire-purchase financing practices with the HPAA set to take effect on June 1, 2026. Among the key changes is the abolition of the Rule of 78s calculation method for early settlement and the flat interest rate structure previously used in hire-purchase financing agreements. To ease the transition, banks will offer goodwill discounts to eligible customers who choose to settle their existing fixed-rate hire-purchase agreements early, particularly those using the Rule of 78 method.
BNM highlighted that the HPAA grants flexibility for consumers and hire-purchase providers to mutually agree on the method for calculating the net balance due under the hire-purchase agreement. This is contingent upon the provider's readiness to implement the reducing balance method, pending any necessary system enhancements.
The central bank also addressed concerns regarding the Rule of 78 method, which has faced criticism for its inequitable impact on customers who repay their loans early. Many countries have banned this method due to its inherent unfairness to credit consumers, and Malaysia is now aligning with global best practices by adopting the reducing balance method.
This new method replaces the Rule of 78, which traditionally frontloaded interest payments, leading to higher initial interest costs and larger outstanding principal amounts for early settlements. The reducing balance method offers a more transparent measure of pricing, accurately reflecting the actual cost of financing for customers and ensuring fairer outcomes for consumers.