Photo: AZHAR MAHFOF/The Star
PETALING JAYA: Consumer groups lauded the newly passed Hire-Purchase Amendment Bill 2025, calling it a fairer and more transparent financing mechanism for car buyers compared to the current Rule 78.
Federation of Malaysian Consumers Associations (Fomca) secretary-general Saravanan Thambirajah said the new system would benefit car buyers who pay off their loans early or make bigger payments, as they’ll end up paying less interest overall.
“Under the previous structure, interest was calculated on the full principal amount for the entire tenure of the loan, even though the borrower was gradually repaying the principal.
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“This means consumers effectively paid more interest upfront and received very little benefit if they settled early,” he said.
Saravanan added that the old system was outdated and tilted heavily in favour of financial institutions.
“In practice, a borrower who diligently made payments or settled early often found that they had already paid most of the interest in the first half of the contract, receiving little to no rebate for early repayment.
“The lack of transparency also meant that many buyers believed they were getting a low interest rate when, in fact, the effective cost of borrowing was significantly higher.
“With the new reducing-balance system, interest will now be computed only on the remaining outstanding amount, ensuring that payments reflect the real balance owed.
“In addition, the introduction of the ‘effective interest rate’ or EIR will make car loans more transparent and comparable,” he added.
Saravanan said the same principles should apply to all forms of hire-purchase agreements, including household goods and mobile devices, to prevent lenders from exploiting loopholes by classifying certain goods differently.
While saying that the law should be implemented quickly, he noted that buyers would need to wait until the Bill completed the legislative process.
“As financial institutions might adjust other fees or charges to compensate for lower interest income, regulators must monitor that no hidden costs are introduced,” he added.
Malaysian Consumer Friendly Organisation vice-president Azlin Othman said the maximum cap on interest charges would help consumers plan their finances more accurately.
“They won’t be surprised by hidden costs or high interest rates,” she said, adding that this principle should be applied to other goods.
“The use of new technology in the system is beneficial for consumers and financiers due to being easier, faster and digitally trackable.”
Financial Planning Association of Malaysia general manager Alice Wong also welcomed the amended Bill, saying it aligned with the association’s advocacy for consumer protection and financial literacy.
“When car buyers have clearer, financing terms, they can better plan their finances and avoid potential debt traps.
“This ultimately contributes to healthier household financial management across Malaysia,” she said.
She said most consumers genuinely struggled with hire purchase agreements, especially for those who did not deal with financial products regularly.
“When you are buying a car, which for most families is their second-largest purchase after a home, you want to understand exactly what you’re committing to financially.
“The complexity of hire purchase calculations has always been a challenge in the consumer finance space.
“When terms and charges are not presented in standardised ways, it’s genuinely difficult for people to make informed comparisons between different financing options,” she said, adding that the new amendments should address this.
