The Hire Purchase (Amendment) Act 2026 will take effect in Malaysia on June 1, enhancing consumer protection in hire purchase financing. Alongside it, the Hire Purchase (Term Charges) Regulations 2026 will also come into force on the same date [1, 2, 3, 4].
Eleven financial institutions and hire purchase companies have confirmed readiness to provide hire purchase financing under the amended law starting June 1, 2026 [1, 3, 4]. The enforcement will occur in two phases: the first beginning June 1, and the second targeted for September 2026 [1, 2, 3, 4].
The new law abolishes the flat interest rate system and the "Rule of 78" method previously used for hire purchase interest calculations [1, 2, 3, 4]. Datuk Armizan Mohd Ali explained the old method meant "a significant portion of early instalment payments was used to service interest, with only a small fraction allocated toward the principal." The amendments instead require the use of the Reducing Balance Method and Effective Interest Rate for fixed-rate loans, making early loan settlements "more transparent and fair for consumers" [2].
The amendments respond to past consumer complaints over hidden interest charges and high outstanding balances despite early settlements [1, 2, 3, 4]. Borrowers often faced high loan balances not reflecting the actual financing cost under former methods [1, 2, 3, 4].
To improve efficiency, the amendments also permit electronic signatures and digital document submissions for loan agreements [2, 4]. Two due diligence checks—borrower identity verification and authenticity of information—are introduced to reduce fraud risks [2, 4].
Financial institutions and hire purchase companies still preparing for compliance, including system integration, have a transition period until March 31, 2027, to complete the necessary adjustments and meet legal requirements [1, 2, 3, 4]. Datuk Armizan urged providers to "offer services under the new legal framework as soon as possible and notify the ministry once the transition process is completed" [4].
