Banks introduce changes to hire-purchase financing

 

Banks in Malaysia will introduce key amendments to hire-purchase financing practices following the implementation of the Hire-Purchase (Amendment) Act 2026 (HPAA), which takes effect on June 1, 2026.

As part of the transition to the new framework, banks will offer goodwill discounts to eligible customers who choose to early settle their existing fixed-rate hire-purchase financing that applies the Rule of 78 method.

The amendments, an industry-led initiative, are supported by the Association of Banks in Malaysia, the Association of Islamic Banking and Financial Institutions Malaysia and the Association of Development Finance Institutions of Malaysia.

In a joint statement today, the associations said this reflects the banking industry’s commitment to supporting customers during the transition while ensuring transparency in hire-purchase financing.

The Domestic Trade and Cost of Living Ministry confirmed that the HPAA will take effect on June 1, 2026, with a transition period until March 31, 2027, for banks to perform necessary systems, processes, 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,” the statement said.

Under the HPAA, several key changes will be introduced to fixed-rate hire-purchase financing.

The amendments include abolishing the Rule of 78 calculation method for early settlement, the flat interest rate structure currently used in hire-purchase financing.

All hire-purchase financing will transition to a reducing balance method, together with the usage of the effective interest rate, enabling customers to better understand the true cost of financing.

These changes aim to empower consumers to make informed decisions and facilitate easier comparison of hire-purchase financing products across banks, the joint statement said.

The associations said each bank will calculate goodwill discounts based on features of the customer’s existing agreement, including the financing tenure and the timing of early settlement, with the exact discount provided when customers request early settlement.

Individuals and micro and small businesses with fixed-rate hire-purchase agreements that apply the Rule of 78 method will be eligible for goodwill discounts if the agreements were entered into before June 1, 2026, or during the transition period ending March 31, 2027, or if the customer chooses to settle early before maturity.

The customer’s account must, nonetheless, meet certain conditions.

A list of banks ready to offer the reducing balance method during the transition period is available on the websites of the associations, namely, www.abm.org.my, www.aibim.com, and www.adfim.com.my.

- Bernama