Think twice: Opportunity cost and liquidity risk must be carefully weighed before taking advantage of the early settlement discount, say experts. — AZMAN GHANI/The Star
PETALING JAYA: While the “goodwill discount” for early settlement of hire-purchase loans may be a boon for consumers and small and medium enterprises (SMEs), not all will fully benefit from it, say experts.
This is because opportunity cost and liquidity risk must be carefully weighed before taking advantage of the early settlement discount, as the negatives may outweigh the benefits.
Economist Dr Razli Ramli said consumers should not be too eager in seeking early settlement of their hire-purchase loans without first weighing the pros and cons.
“They should assess opportunity cost and liquidity risk. If early settlement depletes emergency savings or requires high-cost alternative financing, the net benefit may be negative,” he said when contacted yesterday.
Razli, who is Chief Strategy and Risk at Universiti Teknologi Malaysia’s Azman Hashim International Business School, said the benefits of the goodwill discount would depend largely on an individual’s financial standing.
“If the goodwill discount meaningfully reduces the outstanding balance, settling early can lower the effective cost of financing and reduce long-term debt exposure.
“This supports household financial resilience and improves personal balance sheets,” he added.
Strategically, he said the goodwill discount would be used as a tool by banks to mitigate reputational risks, aimed at restoring consumer trust and pre-empting potential disputes or public backlash.
The Hire Purchase (Amendment) Bill 2025 was passed by Parliament on Dec 1 last year to replace Rule 78 with a reducing balance method for early settlement of hire-purchase loans.
Banks and financial institutions have taken the initiative to offer a goodwill discount programme in line with the enforcement of the new law, which is expected to come into force in the first quarter of this year.
The goodwill discount is a voluntary rebate offered by banks and financial institutions to customers with existing fixed-rate hire-purchase loans who choose to settle early.
SME Association president Chin Chee Seong said the goodwill discount is good news for SMEs with a cash surplus.
“But the benefits seem to be for those who are able to settle their hire-purchase loans. As for those who are unable to settle, we have to wait and see how it goes,” he said when contacted.
Chin said most SMEs are currently facing financial constraints and do not have cash in hand to make early settlements.
“For SMEs that have a cash surplus, the goodwill discount is beneficial for them. For the rest, it is not much of a help,” he said.
SME owner Datuk Irwin Cheong said the goodwill discount needs to be studied based on details from the respective banks and not merely through public announcements.
“Time and time again, announcements made by the government or even Bank Negara Malaysia do not entirely roll down to respective banks.
“The banks have their own prerogative to make amendments as though they have made the changes according to these announcements.
“However, when we do an overall calculation, the rates and savings are insignificant,” he said.
Cheong, who is also Industries Unite chairman, added that it is crucial for those intending to take up the goodwill discount offer to check with their respective banks to determine the actual changes.
He also said businesses with comfortable credit lines are unlikely to take up the goodwill discount offer.
“It is not about the savings. It is about having the leverage of cash flow in hand, as opposed to paying off loans in full.”
Cheong said most businesses would place importance on having cash liquidity over settling their debts in full if they have a comfortable credit line.
