Reducing-balance hire purchase now offered by 14 of 20 banks in Malaysia

Facts

Adoption: 14 of 20 banks offer hire-purchase loans on the reducing-balance method; remaining 6 banks to migrate by 31 December 2026. The grace period ends on 31 March 2027, with full application from 1 April. Source: remarks by Armizan, Minister of Domestic Trade and Cost of Living (Malay Mail, 19 September). ¹

Framework: the amended Hire-Purchase Act took effect on 1 June 2026. It abolishes the flat-rate method and the Rule of 78, and interest is calculated on the outstanding balance. Same source.

Coverage: the ministry aims for 80% of hire-purchase providers to comply by year-end. 429 operators registered with the Malaysian Hire Purchase Companies Association are affected. Same source.

Analysis

Under the Rule of 78, lenders captured much of the interest early even if a loan was repaid ahead of schedule; under the reducing-balance method, more early repayment means less interest income. Effective-rate pricing also makes comparison across lenders easier. In Malaysia, licensing of BNPL and other providers under the Consumer Credit Act 2025 also began on 1 June, so 2026 is a year in which both price disclosure and provider regulation in consumer credit tightened.

Implications

Counterpoints and uncertainties

Large banks have already migrated, so the impact may concentrate on smaller non-bank providers. The view that effective-rate disclosure will intensify competition is speculative, and actual pricing trends are unverified.