KUALA LUMPUR (Dec 2): Banks will offer discounts for customers who choose to settle their existing fixed-rate hire-purchase loans early as the Hire-Purchase (Amendment) Bill 2005 comes into force in 2026.
The initiative is aimed at providing fairer treatment to borrowers affected by the current flat-rate and Rule of 78 structures, according to a joint statement by the Association of Banks in Malaysia, the Association of Islamic Banking and Financial Institutions Malaysia and the Association of Development Finance Institutions of Malaysia.
“The goodwill discount is an industry-wide measure” designed to provide affected customers with treatment comparable to that of new customers under the Act when they choose to settle their hire-purchase financing early, the associations said.
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 statement follows the recent legislature approval of amendments to the Act on Monday, which are intended to update the framework to reflect current industry practices, produce fairer instalment calculations and interest charges.
Following the amendment, flat-rate calculations and the Rule of 78 method for new hire-purchase financing will be abolished. Both methods have long been criticised for front-loading interest charges, resulting in higher outstanding balances for customers opting for early settlement.
The discount will be calculated based on the features of the existing agreement, such as the timing of early settlement and the rate structure, and will be applied to the remaining balance. The exact discount amount will vary by bank and product, and will be disclosed at the point of application.
It will apply to individuals and micro or small businesses with fixed-rate hire-purchase agreements, including those using the Rule of 78 method, that were signed before the amendment takes effect or during the 18-month grace period under the amended law.
The discount will be offered only to accounts that are not in arrears by more than 90 days, not under legal action or repossession order, and not undergoing existing restructuring and rescheduling or formal debt management programmes.
The programme will take effect once the Hire-Purchase (Amendment) Bill 2025 is enforced and will be available until all affected fixed-rate hire-purchase agreements reach maturity or are early-settled within a period estimated of up to nine years.
Customers who continue paying their loans until maturity will not be affected by the Rule of 78 method and do not need to take any action.