Hire purchase amendment bill 2025 passed – interest on car loans will be based on outstanding balance – paultan.org

The Dewan Rakyat yesterday passed the Hire Purchase Bill 2025, which aims to abolish the fixed rate and Rule of 78 method for fixed rate hire purchase loans, reported Named.

The abolition of the flat rate and the Rule of 78 are due to the fact that the system is unfair and burdensome on borrowers, Domestic Trade and Cost of Living Minister Datuk Armizan Mohd Ali said in his closing debate on the bill, the report said. This system will be replaced by the effective interest rate and balance reduction method, which would be more beneficial, he said.

Under the bill, the effective interest rate (EIR) and the reducing balance method will replace the rule of 78 for greater transparency in loan calculations, reports said. The Edge Malaysia. The bill also requires lenders to disclose the EIR to consumers when the rate is marketed and before signing an agreement.

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

The minister added that the balance reduction method ensured that interest was charged only on the outstanding balance of the loan, and that the approach was particularly relevant for early loan repayments compared to the old system, where payments in the initial phase focused more on the interest than on the principal amount of the loan.

“The proposal on the effective interest rate will benefit consumers by allowing them to more accurately compare the real costs of different types of loans and financial products. Secondly, consumers can better plan their finances because this rate reflects the actual amount of interest to be paid over the life of the loan, and thirdly, it helps identify hidden costs, including compound interest, that could lead to increasing debt,” Armizan said.

Besides abolishing the fixed interest rate and the Rule of 78 method, the amendment also allowed the use of modern technology in hire purchase agreements and updates, Armizan said as he submitted the bill for its second reading.

In addition to removing the flat rate and the Rule of 78, the amended bill proposed an amendment to Section 6B regarding the adoption of a new method for calculating installment charges, which is intended to provide owners with a timeframe to notify tenants of any changes to their financial obligations following a review of the effective interest rate, the minister said.

Although the bill has been passed, it will not come into effect immediately as there is an 18-month transition period for the bill amendment. However, several MPs have called on the ministry to shorten the transition period and speed up the implementation of the amended bill. The Edge Malaysia reported.

Kota Melaka MP Khoo Poay Tiong proposed reducing the grace period to six to 12 months as financial institutions have already set up home loan computer systems that use the reducing balance method.

Do you want to sell your car? Sell ​​it with Auto.