KUALA LUMPUR April 20, 2026 — In a new video posted on X (formerly Twitter), Datuk Seri Tengku Zafrul Aziz, Chairman of the Malaysian Investment Development Authority (MIDA) and President of the Badminton Association of Malaysia, has sparked public discussion on the longstanding frustrations faced by Malaysians repaying car loans under the old hire-purchase system.
The 75-second clip, captioned “Salah siapa? Salah kita atau salah sistem?” (“Whose fault? Ours or the system’s?”), features Tengku Zafrul explaining why early settlement of car loans has often left borrowers paying far more than expected.
He begins by clarifying that the issue is “bukan sebab bank” (not because of the bank). Instead, he points directly to the flat interest rate and the controversial Rule of 78 method — a decades-old formula widely used in Malaysia’s hire-purchase (HP) financing for cars.
How the Rule of 78 Worked Against Borrowers
Under the Rule of 78 (also known as the Sum of Digits method), interest is heavily front-loaded. Borrowers pay most of the interest in the early months of the loan, even if they settle the loan early.
Tengku Zafrul illustrates this with a clear example:
- A RM100,000 car loan.
- After roughly five months, under the old Rule of 78 system, the remaining balance is still approximately RM64,000.
- In contrast, the modern reducing balance (or Effective Interest Rate — EIR) method would leave a significantly lower outstanding amount.
He asks: “Kerajaan di mana?” (“Where is the government?”) while highlighting how the old way of calculating debt (“cara kira hutang”) has disadvantaged ordinary Malaysians who tried to clear their loans ahead of schedule.
Major Reform Already Underway
Tengku Zafrul’s video comes at a pivotal time. Parliament passed the Hire-Purchase (Amendment) Act 2025 last year, which officially abolishes the flat-rate interest and Rule of 78 for new hire-purchase loans.
Key changes:
- New car loans from 1 January 2027 will use the fairer reducing balance / Effective Interest Rate (EIR) method.
- From 1 June 2026, banks will begin offering goodwill discounts on early settlements for existing loans still under the old Rule of 78 system.
The reform has been welcomed as long-overdue consumer protection, ending a system that many critics described as inequitable and front-loaded against borrowers.
Public Reaction
The post has already drawn mixed responses, with some users thanking Tengku Zafrul for the explanation while others question why the change took so long and why existing borrowers were not fully covered by the new law.
Tengku Zafrul’s message appears aimed at public education — helping Malaysians understand that the high cost of early loan settlement was not due to individual financial mismanagement, but a systemic flaw that the government is now correcting.
This latest outreach aligns with the Madani administration’s focus on #EkonomiRakyat — putting the people’s economic wellbeing at the centre of policy.
Stay tuned to Life News Agency for updates on how the new hire-purchase rules will affect your car loan.
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