GEORGE TOWN: Car buyers can expect clearer costs, easier comparison between financing packages and fairer savings if they settle their loans early under the new Hire-Purchase (Amendment) Act 2026.
The new hire-purchase financing system helps buyers better understand the actual cost of financing by shifting from the long-standing flat rate and Rule of 78 interest calculation methods, to the reducing balance and effective interest rate system.
Datuk Tony Khor Chong Boon, president of the Federation of Motor & Credit Companies Association of Malaysia, said that under the previous system, a large portion of interest was collected during the earlier part of the loan period, resulting in lower-than-expected savings when borrowers settled their loans early.
“With the new reducing balance method, interest will be calculated based on the outstanding principal balance rather than the original loan amount,” he said in a statement on Sunday (May 31).
Khor said this would give buyers greater transparency in financing costs and allow them to compare loan packages from different financial institutions more easily.
He added that the new system would also reduce disputes and misunderstandings over financing agreements.
As such, consumers need not be concerned that vehicle ownership would become more difficult or expensive.
“The objective of this reform is not to increase the financial burden on consumers.
“Instead, it is intended to provide greater transparency, fairness and protection for borrowers,” he said.
Khor said vehicles remained an essential need for many Malaysian families, businesses and entrepreneurs.
“There is no reason to postpone vehicle purchases solely because of this change.
“Whether purchasing a new or used vehicle, consumers may continue to do so confidently, provided they make prudent financial decisions according to their means,” he said.
Khor said a more transparent financing environment would also strengthen public confidence in the automotive market, as consumers who clearly understood their financing commitments were more likely to make responsible purchasing decisions.
He said the association supported the Hire-Purchase (Amendment) Act 2026 as it would improve consumer protection and bring Malaysia’s vehicle financing practices closer to international standards.
Meanwhile, Khor urged the government, Bank Negara Malaysia and financial institutions to ensure sufficient transition arrangements were in place.
He said implementation should include public awareness campaigns, clear and standardised financing disclosures, reasonable timelines for financial institutions, training for automotive sales personnel and continued engagement between regulators and industry stakeholders.
