Kota Kinabalu: The Hire Purchase (Amendment) Act 2026 amendments come into force on June 1, aimed at strengthening consumer protection and ensuring greater transparency in credit agreements.
Domestic Trade and Cost of Living Minister Datuk Armizan Mohd Ali said the amendments form part of the government’s broader efforts to reform the consumer credit ecosystem and enhance fairness in financing arrangements.
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It includes the abolition of the flat interest rate system and the Rule of 78, which had long been criticised for placing a heavier interest burden on borrowers during the early stage of loan repayments.
“Under the previous method, a large portion of instalment payments at the beginning of the loan tenure was used to service interest, leaving only a small amount for the principal.
“This often resulted in borrowers who opted for early settlement having to bear a high remaining balance that did not reflect the actual cost of the loan,” Armizan said.
Armizan said the amendments are among the government initiatives implemented since last year to strengthen the consumer credit ecosystem legal framework, which included the enactment of Consumer Credit Act 2025 (Act 873) passed in the Dewan Rakyat on July 21, 2025 while passed in the Dewan Negara on Sept 4, 2025.
While the Hire Purchase (Amendment) Act 2026 was passed in the Dewan Rakyat on Oct 8, 2025, and passed in the Dewan Negara on Dec 1, 2025.
He said the amendments introduce reducing the balance method and effective interest rate calculation for fixed-rate hire purchase financing, allowing interest to be calculated based on the outstanding loan balance.
“This makes early loan settlement more transparent and fair to consumers,” he said.
He added that the amendments also support digital transformation in hire purchase agreements by allowing the use of electronic documentation and digital signatures to improve efficiency in the agreement process.
At the same time, he said due diligence requirements will be introduced to verify borrowers’ identities as a measure to reduce the risk of fraud.
“When the Bill was tabled in Parliament, the initial transition period (grace period) for the Hire Purchase (Amendment) Act 2026 was 18 months after the gazette date.
However, various parties, including several Members of Parliament, proposed that the amendment be enforced as soon as possible.
“After further discussions, the government agreed that the Hire Purchase (Amendment) Act 2026 should come into force sooner that is on June 1, this year which is four months after the amendments were gazetted on Jan 30, 2026,” he said.
Nevertheless, he said a transition period could still be provided to hire purchase providers that require additional time to adjust their systems, documentation and operational processes to comply with the new requirements.
“Institutions that are ready, however, may begin offering hire purchase agreements based on the amended provisions once the Act takes effect on June 1, 2026,” he said.
Armizan also said banking institutions had agreed to offer a goodwill discount to customers under the previous system who opt for early settlement of their loans.
“The arrangement was announced by the Association of Banks in Malaysia, Association of Islamic Banking and Financial Institutions Malaysia and Association of Development Financial Institutions of Malaysia in December last year.
“This discount will be provided to customers under the old system (flat interest rate and Rule of 78) who choose to settle their loans early, ensuring that their outstanding balance is equivalent to customers entering new agreements based on the effective interest rate and reducing balance method under the Hire Purchase (Amendment) Act 2026.
“The discount will ensure that customers who entered into agreements under the old method — which used the flat interest rate and Rule of 78 — and choose to settle their loans early, will have outstanding balances equivalent to customers entering new agreements based on the effective interest rate and reducing balance method under the Hire Purchase (Amendment) Act 2026,” he said.
Armizan said the reform reflects the government’s commitment to building a more transparent and responsible credit ecosystem while safeguarding the rights and interests of consumers nationwide.
