KUALA LUMPUR: Banks in Malaysia will introduce changes to hire-purchase financing practices following the implementation of the Hire-Purchase (Amendment) Act 2026 (HPAA), which takes effect on June 1, 2026.
In a joint statement, the Association of Banks in Malaysia (ABM), Association of Islamic Banking and Financial Institutions Malaysia (AIBIM) and the Association of Development Finance Institutions of Malaysia (ADFIM) said banks will provide goodwill discounts to eligible customers who choose to early settle existing fixed-rate hire-purchase financing that applies the Rule of 78 method.
The industry-led initiative is intended to support customers during the transition to the new framework while enhancing transparency in hire-purchase financing.
The Ministry of Domestic Trade and Cost of Living confirmed that the HPAA will take effect on June 1, 2026, with a transition period until March 31, 2027 to allow banks to make the necessary system, process and infrastructure enhancements.
“During this period, banks may continue to provide new hire-purchase financing under the Rule of 78 method while updating their systems and processes.
“Nevertheless, some banks will also be ready to offer the reducing balance method during this transition period,” it said.
Under the HPAA, the Rule of 78 calculation method used for early settlement and the flat interest rate structure for fixed-rate hire-purchase financing will be abolished.
All hire-purchase financing will instead move to a reducing balance method using the effective interest rate (EIR).
The changes aim to enable consumers to better understand the true cost of financing and make easier comparisons across hire-purchase products offered by different banks.
Starting June 1, 2026, banks will offer goodwill discounts to eligible individuals and micro and small businesses who early settle their existing fixed-rate hire-purchase agreements that apply the Rule of 78 method.
The goodwill discount is designed to make the outstanding balance more comparable to what it would have been under the reducing balance method.
Each bank will determine the goodwill discount based on the features of the customer’s agreement, including the financing tenure and the timing of early settlement. The exact discount amount will be disclosed when customers request for early settlement.
To qualify, the hire-purchase agreement must have been entered into before June 1, 2026 or during the transition period ending March 31, 2027, and the customer must choose to settle the financing before maturity.
However, the account must not be in arrears exceeding 90 days, under legal action or repossession, or under an existing restructuring and rescheduling arrangement or formal debt management programme.
The associations said hire-purchase financing is widely used in Malaysia, particularly for vehicle purchases, and the enhancements under the HPAA are expected to strengthen consumer protection and improve transparency in the market.
Customers who plan to apply for hire-purchase financing are encouraged to check with banks on whether they offer the reducing balance method during the transition period and to use the EIR when comparing financing options across banks.
