PUTRAJAYA: The implementation of the Hire Purchase (Amendment) Act 2026, which came into force on June 1 (Monday), marks a major reform in the country’s hire purchase financing system and is expected to benefit millions of consumers, particularly vehicle buyers.
Domestic Trade and Cost of Living Minister, Datuk Armizan Mohd Ali (pic), said it is aimed at strengthening consumer protection, enhancing transparency in credit transactions, and ensuring the hire purchase financing industry operates in a fairer and more competitive manner.
He said the enforcement also involves the Hire Purchase (Term Charges) Regulations 2026 [P.U.(A) 171/2026], which will be implemented concurrently to support the new provisions under the amended Hire Purchase Act 1967.
“The amendments were approved by Parliament last year as part of the government’s efforts to strengthen the legal framework governing consumer credit and address long-standing issues faced by the public in hire purchase financing.
“One of the main complaints from consumers has been the lack of transparency in interest charges and the high outstanding loan balances despite borrowers making early settlements,” he said.
Peviously, most hire purchase loans used the flat interest rate method and the Rule of 78, which resulted in a significant portion of early instalment payments being allocated towards interest rather than the principal amount.
As a result, he said consumers who wished to settle their loans early were still burdened with high outstanding balances that did not accurately reflect the actual financing costs incurred.
To address this issue, he said the amendments introduce the Reducing Balance Method and Effective Interest Rate (EIR) for fixed-rate hire purchase loans.
Under this approach, Aemizan said interest will be calculated based on the current outstanding loan balance, allowing consumers to enjoy fairer savings when making early loan settlements.
Apart from financing reforms, he said the new Act also introduces significant changes to documentation processes by allowing the use of digital technology in hire purchase agreements.
He said this includes the use of electronic signatures and digital document submissions to expedite transactions between consumers and financial institutions.
“At the same time, additional security measures have been introduced through a mandatory two-stage due diligence process for borrower identity verification. This is intended to reduce the risks of fraud, identity forgery, and misuse of personal information in credit transactions.
“Eleven financial institutions and hire purchase providers are already fully prepared to offer financing based on the new provisions stipulated under Act 212 and the related subsidiary regulations through the first phase of implementation, which began on June 1,” he said.
Armizan advised consumers seeking to benefit from the new system to check with their financial institutions or hire purchase providers before signing any agreements to ensure that the facilities offered comply with the new provisions.
He added that the second phase of implementation is scheduled to begin in September and will involve more financial institutions and financing companies that are currently completing operational adjustments and system integration processes.
“The government has also provided a transition period, or grace period, until March 31, 2027, for financial institutions and hire purchase providers that are still in the process of modifying their systems to ensure an orderly transition to the new framework.
“Therefore, KPDN encourages all financial institutions and hire purchase providers to expedite their transition processes and notify the ministry as soon as they are ready to fully implement the new system,” he said.
Armizan stressed that the reform reflects the government’s ongoing commitment to creating a more transparent, integrity-driven, and people-centred consumer credit ecosystem, while strengthening governance within the country’s financing industry.
“This measure will not only provide better protection for consumers, but also enhance public confidence in the hire purchase financing system and ensure more responsible and sustainable industry practices,” he said.
