As part of the transition to the new framework, banks plan to offer goodwill discounts for eligible customers who choose to early settle existing fixed-rate hire-purchase financing that applies the Rule of 78 method. The initiative, supported by The Association of Banks in Malaysia (ABM), Association of Islamic Banking and Financial Institutions Malaysia (AIBIM), and Association of Development Finance Institutions of Malaysia (ADFIM), reflects the banking industry’s commitment to supporting customers while ensuring transparency in hire-purchase financing.
The Ministry of Domestic Trade and Cost of Living (KPDN) confirmed that the HPAA will take effect on 1 June 2026, with a transition period until 31 March 2027 for banks to perform necessary systems, processes, and infrastructure enhancements. During this period, banks may continue to provide new hire-purchase financing under the Rule of 78 method while updating their systems and processes, though some banks will also be ready to offer the reducing balance method during the transition.
Key Changes Under the HPAA
Under the HPAA, several changes will apply to fixed-rate hire-purchase financing:
- The Rule of 78 calculation method for early settlement will be abolished.
- The flat interest rate structure will be abolished.
- All hire-purchase financing will transition to a reducing balance method, together with the usage of the Effective Interest Rate (EIR), enabling customers to better understand the true cost of financing.
These changes aim to empower consumers to make informed decisions and facilitate easier comparison of hire-purchase financing products across banks.
Goodwill Discounts for Early Settlement
Starting 1 June 2026, banks will provide goodwill discounts to eligible customers who opt to early settle existing fixed-rate hire-purchase financing by applying the Rule of 78 method. Customers who entered into hire-purchase agreements before banks implemented the HPAA and chose to settle early will have an outstanding balance more comparable with what it would have been under the reducing balance method.
Each bank will calculate goodwill discounts based on features of the customer’s existing agreement, including financing tenure and timing of early settlement. Exact discount details will be given when customers request early settlement.
Eligibility
Goodwill discounts will apply to individuals and micro and small businesses with fixed-rate hire-purchase agreements that:
- Were entered into before 1 June 2026 or during the transition period ending 31 March 2027; and
- The customer chooses to settle early.
At the point of application for early settlement, the customer’s account must not be in arrears exceeding 90 days, under legal action or issued with a repossession order, or under an existing restructuring and rescheduling (R&R) or formal debt management programme.
Supporting Customers Through the Transition
The banking industry remains committed to supporting customers throughout this transition and will continue working closely with regulators to ensure a smooth and transparent implementation of the HPAA.
Hire-purchase financing is widely used in Malaysia, particularly for vehicle purchases. The enhancements under the HPAA are expected to strengthen consumer protection and improve transparency in the hire-purchase market.
Customers looking to apply for hire-purchase financing are encouraged to:
- Ask banks whether they offer the new reducing balance method during the transition period; and
- Use the EIR to compare financing options across banks.
A list of banks ready to offer the reducing balance method during the transition is available on the websites of all three associations:
- ABM: www.abm.org.my
- AIBIM: www.aibim.com
- ADFIM: www.adfim.com.my
