KUALA LUMPUR: The Dewan Rakyat today passed the Hire Purchase (Amendment) Bill 2025 through a voice vote.
The bill aims to abolish the flat rate and the Rule of 78 method for fixed-rate hire purchase loans.
Domestic Trade and Cost of Living Minister Datuk Armizan Mohd Ali explained the abolition was due to the system being unfair and burdensome to borrowers.
He stated the move would be replaced with the effective interest rate and the reducing balance method.
“The rationale behind this amendment is to ensure fairer monthly instalment calculations and interest charges that do not burden borrowers, particularly those wishing to make early loan settlements.”
Armizan said the effective interest rate enhances transparency in how hire purchase loans are assessed and marketed.
“With the use of the effective interest rate, it enhances transparency in how hire purchase loans are assessed and marketed, allowing consumers to compare loan packages more accurately and efficiently.”
He elaborated that the reducing balance method ensures interest is charged only on the outstanding loan balance.
Armizan noted this approach is particularly relevant for early loan settlements compared to the old system.
He said the old system focused initial payments more on interest rather than the loan principal.
The minister outlined three key benefits of the effective interest rate for consumers.
“The proposal related to the effective interest rate will benefit consumers by enabling them to compare the true costs of various loan types and financial products more accurately.”
“Secondly, consumers can plan their finances better as this rate shows the actual amount of interest to be paid over the loan period.”
“Thirdly, it helps identify hidden costs, including compound interest, which could lead to mounting debt.”
The bill was debated by 20 Members of Parliament from both government and opposition blocs. – Bernama