Hire-Purchase Amendment Act 2026 Malaysia
What every car buyer in Malaysia needs to know — new loans use reducing balance interest, existing customers get goodwill discounts on early settlement.
Sources: Malaysia Parliament · Association of Banks Malaysia (ABM) · Bernama · gazetted 30 January 2026
The 30-Second Summary
New car loans (from 1 June 2026): Interest calculated on outstanding balance only — fairer, and early settlement is now significantly cheaper.
Existing car loans: Your monthly payments stay the same. But if you want to settle early on or after 1 June 2026, contact your bank for the goodwill discount.
No action needed today unless you are signing a new hire-purchase agreement or planning early settlement.
What Changed — Old vs New
| Provision | Before (old law) | After (1 June 2026) |
|---|---|---|
| Interest method | Flat rate / Rule of 78 | Reducing balance (EIR) |
| How interest is charged | On original loan amount for full tenure | On outstanding principal only — decreases as you repay |
| Early settlement | Expensive — front-loaded interest | Cheaper — only remaining interest owed |
| Rate change notice | Not specified | 14-day written notice mandatory |
| Amortisation schedule | Not required | Must be provided to borrower |
| Digital agreements | Paper only | Electronic agreements valid |
| Repossession protection | Shorter notice periods | Extended notice — procedural failure can invalidate repossession |
If You Are Buying a Car From 1 June 2026
Your hire-purchase agreement will automatically use the reducing balance method — no action needed.
Your lender must provide a full amortisation schedule before you sign — if they don't, ask for it. It is now a legal requirement.
If you settle the loan early (e.g., you sell the car), you only owe interest on the remaining balance — early settlement rebates are now far more favourable.
Compare interest rates across banks using the Effective Interest Rate (EIR) — banks must now disclose this, making comparison easier.
If You Already Have a Car Loan
Continuing regular payments? Nothing changes. Your monthly instalment stays the same for the rest of your tenure.
Considering early settlement? From 1 June 2026, contact your bank and ask for an early settlement quote with the goodwill discount. Banks are voluntarily applying the reducing balance calculation to existing customers settling early — you could save hundreds to thousands of ringgit.
Goodwill discount eligibility: Your account must not be in arrears by more than 90 days, not under legal action or repossession, and not undergoing formal debt restructuring. (Source: ABM)
New Interest Rate Caps
Fixed rate (up to 5 years)
Max 17% p.a.
Fixed rate (over 5 years)
Max 16% p.a.
Variable rate
Max 17% p.a.
Note: Most Malaysian bank car loan rates are well below these caps (typically 2.7–3.5% flat, equivalent to ~5–6% EIR).
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FAQ — Hire-Purchase Amendment Act 2026 Malaysia
What is the Hire-Purchase Amendment Act 2026 Malaysia?
The Hire-Purchase (Amendment) Act 2025 — which takes effect 1 June 2026 — replaces the flat-rate and Rule of 78 interest calculation method with a reducing balance (effective interest rate) method. This means interest is calculated on your outstanding principal only, not the original loan amount throughout the tenure. Source: Malaysia Parliament, gazetted 30 January 2026.
Does the amendment affect my existing car loan?
If you continue making regular monthly payments, your existing hire-purchase agreement (signed before 1 June 2026) remains under the original terms. However, if you plan to settle your loan early on or after 1 June 2026, you are entitled to a goodwill discount from your bank — making early settlement significantly cheaper than before. Source: Association of Banks Malaysia (ABM) press release.
Who qualifies for the goodwill discount on early settlement?
Existing hire-purchase customers who settle early from 1 June 2026 qualify if: (1) their account is not in arrears by more than 90 days, (2) the account is not under legal action or repossession order, and (3) the account is not undergoing debt restructuring. Source: ABM.
What is the difference between flat rate and reducing balance for car loans?
Flat rate: interest is charged on the original loan amount for the entire tenure. Rule of 78: similar but front-loads interest to early payments. Reducing balance: interest is charged only on the outstanding principal remaining — so as you pay down the loan, interest decreases. Reducing balance is fairer and makes early settlement much cheaper.
Do I need to do anything before 1 June 2026?
No action is required before the date. If you are buying a new car on or after 1 June 2026, your hire-purchase agreement will automatically use the new reducing balance method. If you have an existing loan and are considering early settlement, contact your bank from 1 June 2026 to request a settlement quote under the goodwill discount.
Sources
· Malaysia Parliament — Hire-Purchase (Amendment) Act 2025, passed October 2025
· Federal Gazette — gazetted 30 January 2026
· Association of Banks Malaysia (ABM) — Goodwill discount press release, abm.org.my
· Bernama — Official newswire coverage, bernama.com
· Malay Mail — Parliamentary coverage, 8 October 2025
