Amended Hire Purchase Act to Take Effect June 1, Ending Outdated Loan Calculation Methods
KOTA KINABALU — Amendments to Malaysia’s hire purchase legislation aimed at strengthening fairness in consumer financing and modernising credit agreement processes will take effect on June 1.
Domestic Trade and Cost of Living Minister Armizan Mohd Ali said the Hire Purchase (Amendment) Act 2026 will be implemented four months after it was officially gazetted on January 30.
He explained that some hire purchase providers may require a transition period to adapt their systems, documentation and operational procedures to comply with the new legal requirements.
However, companies that are already prepared may immediately begin offering hire purchase agreements under the amended provisions once the law comes into force.
Armizan said this when speaking to reporters after attending the Hari Pengguna Kebangsaan 2026 celebration officiated by Prime Minister Anwar Ibrahim.
Flat Interest and Rule of 78 Eliminated
One of the major changes introduced in the amendment is the abolition of the flat interest rate system and the Rule of 78 loan calculation method.
Under the Rule of 78 approach, a significant portion of early instalments is allocated toward interest payments, while only a small portion reduces the principal amount.
This often results in borrowers who wish to settle their loans early facing a remaining balance that appears disproportionately high compared to the actual loan cost.
Armizan said removing these practices will help ensure a fairer financing structure and provide consumers with a clearer reflection of the true cost of borrowing.
Digitalisation of Hire Purchase Agreements
The revised legislation also allows greater use of digital technology in hire purchase agreements.
This includes the introduction of digital signatures and electronic submission of documents to simplify administrative procedures and improve efficiency in the agreement process.
The move aligns with the government’s broader initiative to accelerate digital adoption across Malaysia’s consumer financial services sector.
Part of Broader Consumer Credit Reforms
Armizan said the amendments form part of a broader consumer law reform agenda planned for 2026.
These efforts aim to strengthen the legal framework governing Malaysia’s consumer credit ecosystem and ensure greater transparency and accountability.
Among the key reforms introduced earlier is the Consumer Credit Act 2025.
The legislation was approved by the Dewan Rakyat on July 21, 2025 and the Dewan Negara on September 4 before taking effect on March 1, 2026 under the supervision of the Ministry of Finance.
According to Armizan, these legal reforms demonstrate the government’s commitment to building a more transparent, responsible and consumer-focused credit system in the country.
-wilayah.com.my
