Eleven financial institutions and hire purchase providers are fully prepared to offer financing under the new Hire Purchase (Amendment) Act 2026, which will come into effect on 1 June, according to the Ministry of Domestic Trade and Cost of Living (KPDN).
Its Minister Datuk Armizan Mohd Ali said the rollout marks the first phase of the reform, while a second phase is scheduled to begin in September 2026. He advised consumers to review the new provisions carefully before finalising any hire purchase agreements.
In the same statement, he added that institutions and providers still undergoing system adjustments will be given a transition period until 31 March 2027 to ensure smooth implementation without disrupting industry operations.
From a broader policy perspective, the amendments are part of the government’s ongoing efforts to strengthen a more transparent, fair and competitive consumer credit ecosystem in line with current financial sector developments.
Armizan said the enforcement follows amendments to the Hire Purchase Act 1967, which were passed in Parliament in 2025, aimed at addressing long-standing weaknesses in the existing framework.
He noted that among key issues previously raised by consumers were hidden interest charges and high outstanding loan balances, particularly for those opting for early settlement of vehicle loans.
One of the major changes includes the abolition of the flat interest rate method and the Rule of 78, which previously resulted in an imbalance where early instalments were heavily weighted towards interest rather than principal repayment.
In its place, the Reduction Balance Method and Effective Interest Rate approach will be introduced for fixed-rate hire purchase loans, ensuring that interest is calculated based on the remaining loan balance, making early settlement more transparent and fair to consumers.
The reform also allows for the use of digital signatures and electronic document submission, in line with Malaysia’s broader digital transformation agenda aimed at improving efficiency in financial transactions.
Additionally, the amendment introduces a mandatory two-step due diligence requirement for borrower identity verification as a safeguard against fraud in hire purchase agreements.
The government said the reforms reflect its commitment to improving governance in the consumer credit sector while enhancing protection of public interests through a more transparent and accountable financing system.
