Hire Purchase (Amendment) Bill 2025 Passed by Parliament

The Parliament has passed the Hire Purchase (Amendment) Bill 2025, which abolishes the flat rate for hire purchase loan interests.

The Malaysian Parliament’s lower house, the Dewan Rakyat, passed the Hire Purchase (Amendment) Bill 2025 yesterday, aimed at abolishing the flat rate and the Rule of 78 method for fixed-rate hire purchase loans.

As reported by Bernama, the bill was passed by a voice vote after being debated by 20 MPs from both the government and opposition blocs during the parliamentary sitting yesterday.

Domestic Trade and Cost of Living minister (KPDN) YB Datuk Armizan Mohd Ali

Domestic Trade and Cost of Living minister (KPDN) Datuk Armizan Mohd Ali, who spoke during the bill debate, explained that the abolition of the flat rate and Rule of 78 method was due to the system being unfair and burdensome to borrowers.

This system then will be replaced with the effective interest rate and the reducing balance method, which would be more beneficial and less burdensome to borrowers.

“The rationale behind this amendment is to ensure fairer monthly instalment calculations and interest charges that do not burden borrowers, particularly those wishing to make early loan settlements. With the use of the effective interest rate, it enhances transparency in how hire purchase loans are assessed and marketed, allowing consumers to compare loan packages more accurately and efficiently,” the minister said.

Armizan further added that this new reducing balance method ensured that interest for the hire purchase loans was charged only on the outstanding loan balance. This approach was particularly relevant for early loan settlements compared to the old system, where payments at the initial stage were more focused on interest rather than the loan principal.

“The proposal related to the effective interest rate will benefit consumers by enabling them to compare the true costs of various loan types and financial products more accurately. Secondly, consumers can plan their finances better, as this rate shows the actual amount of interest to be paid over the loan period, and thirdly, it helps identify hidden costs, including compound interest, which could lead to mounting debt,” Armizan continued.

Apart from the abolition of the flat interest rate and the Rule of 78 method, the KPDN minister added that the amendment also allowed for the use of modern technology in hire purchase agreements and updates.

Additionally, he said the bill proposed an amendment to Section 6B relating to the adoption of a new method for calculating term charges, aimed at providing a time frame for owners to notify hirers of any changes to their financial obligations following a review of the effective interest rate.

While the bill has been passed by Dewan Rakyat, it will not take effect immediately, as there will be an 18-month transition period to include all the amendments made.

Source: Bernama