KUALA LUMPUR (Oct 6): The Hire-Purchase (Amendment) Bill 2025, which seeks to replace the old base-lending-rate system with reference rate and effective interest rate, was tabled in the lower house of Parliament on Monday.

Hire-purchase agreements are typically used to finance purchases of cars and acquisition of big-ticket items such as commercial vehicles and industrial machinery, by allowing the use of the assets while paying for them in instalments.

The amendment seeks to provide "fairer outcomes to consumers" particularly through the replacement of existing method for terms charges calculation, according to the bill's explanatory statement.

This includes adoption of new method for calculating net balance outstanding "when there is early completion or termination of the agreement", or where the owner takes possession of the goods involved, according to the statement.

Key amendments include changes to Section 2, which introduces the definition of “effective interest rate” under Sub-section (b), and “reference rate” under Sub-section (c), according to the blue bill book circulated.

The effective interest rate is defined as the rate reflecting the actual finance cost of a hire-purchase agreement. For agreements with fixed terms charges, it represents the true financing cost, while for agreements with variable terms charges, it is calculated using the reference rate as a benchmark.

Meanwhile, the reference rate is defined as the benchmark interest rate used to determine the pricing of variable-rate hire-purchase agreements. The benchmark is based on the prevailing overnight policy rate published by the Monetary Policy Committee of Bank Negara Malaysia.

The central bank has been phasing out the use of base lending rates mostly used for mortgages, though some banks still use the old rate for floating-rate car loans due to the requirements under the Hire Purchase Act 1967.

The bill is also amending Section 14 to clarify calculation of net balance due and outstanding balance under hire-purchase agreements. The net balance includes outstanding financed amount plus terms charges accrued up to the next payment due date, or a specified date in the notice, whichever is later.

Amendments to Section 18 limit the owner’s recovery to the outstanding balance when repossessing goods, preventing claims exceeding what is owed under the hire-purchase agreement.

Clause 19 seeks to amend paragraph (b) of the Fifth Schedule, to reflect the revised cost computation methodology for repossessed goods, applying the same calculation regardless of whether the terms charges are at a fixed or variable rate.

The amendment also incorporates the surrender value of insurance contracts, which must be deducted from the balance due under the hire-purchase agreement.

The bill was tabled by the Minister of Domestic Trade and Costs of Living Datuk Amirzan Mohd Ali, and the second reading is scheduled for the current Parliament sitting.

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