{"id":10137,"date":"2026-03-10T15:11:34","date_gmt":"2026-03-10T07:11:34","guid":{"rendered":"https:\/\/carro.co\/my\/blog\/?p=10137"},"modified":"2026-03-10T15:11:34","modified_gmt":"2026-03-10T07:11:34","slug":"a-guide-to-malaysias-new-hire-purchase-amendment-bill-2025","status":"publish","type":"post","link":"https:\/\/carro.co\/my\/blog\/a-guide-to-malaysias-new-hire-purchase-amendment-bill-2025\/","title":{"rendered":"A guide to Malaysia\u2019s new Hire Purchase (Amendment) Bill 2025"},"content":{"rendered":"

Malaysia is moving toward fairer and more transparent car financing. Parliament passed the <\/span>Hire Purchase (Amendment) Act 2025<\/b>, which abolishes the long\u2011standing <\/span>Rule of 78<\/b> and flat\u2011rate interest calculations for fixed\u2011rate hire purchase loans. These changes are set to take effect for new car loans from <\/span>January 1, 2027<\/b>.<\/span><\/p>\n

The goal is to modernise how car loan interest is calculated and give borrowers a clearer, fairer understanding of what they actually pay over time. Under the new rules, lenders must use the <\/span>reducing balance method<\/b> (also known as the <\/span>effective interest rate, EIR<\/b>).<\/span>\u00a0<\/span><\/a><\/p>\n

Consumer groups and financial experts broadly welcome the reform as it enhances transparency and removes a practice that historically favoured lenders over borrowers.<\/span><\/p>\n

\"Loan\"<\/p>\n

Old system vs new system under the <\/b>Hire Purchase (Amendment) Bill 2025<\/b><\/h2>\n\n\n\n\n\n\n\n\n\n
Feature<\/b><\/td>\nOld system (Rule of 78 \/ Flat-rate)<\/b><\/td>\nNew system (Reducing balance \/ EIR)<\/b><\/td>\n<\/tr>\n
Interest calculation<\/span><\/td>\nBased on total principal or front-loaded with Rule of 78<\/span><\/td>\nCalculated on remaining loan balance each month<\/span><\/td>\n<\/tr>\n
Early repayment<\/span><\/td>\nSavings minimal; interest already front-loaded<\/span><\/td>\nSavings significant; less interest accrues as principal decreases<\/span><\/td>\n<\/tr>\n
Total interest cost<\/span><\/td>\nHigher over loan tenure<\/span><\/td>\nLower than flat-rate for same loan amount and tenure<\/span><\/td>\n<\/tr>\n
Transparency<\/span><\/td>\nHarder to estimate actual cost<\/span><\/td>\nClear effective interest rate (EIR) disclosed<\/span><\/td>\n<\/tr>\n
Fairness<\/span><\/td>\nFavours lender; early settlement less beneficial<\/span><\/td>\nFavours borrower; interest reflects true outstanding balance<\/span><\/td>\n<\/tr>\n
Loan start<\/span><\/td>\nApplies to most loans pre-2027<\/span><\/td>\nApplies to all new loans from Jan 1, 2027<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

What the old system meant: Flat rate and the Rule of 78<\/b><\/h2>\n

Until now, most car loans in Malaysia used either:<\/span><\/p>\n