PUTRAJAYA, May 31, 2026 – The Ministry of Domestic Trade and Cost of Living (KPDN) will officially enforce the Hire-Purchase (Amendment) Act 2026 starting tomorrow, June 1, 2026. The move is designed to strengthen consumer protection and establish a fairer, more transparent, and competitive hire-purchase financing system in Malaysia.
The enforcement will also bring into effect the Hire-Purchase (Term Charges) Regulations 2026 [P.U.(A) 171/2026].
The amendments to the Hire-Purchase Act 1967, which were passed by Parliament in 2025, address long-standing public complaints, especially in vehicle financing transactions. These included hidden interest charges and high outstanding loan balances even when borrowers made early settlements, forcing consumers to pay more than the actual cost of the loan.
Key highlights of the amendments include:
- Abolition of the flat interest rate (tflat rate) and the Rule of 78 method. Under the old system, most early instalments went towards interest while only a small portion reduced the principal. The new provisions introduce the reducing balance method and effective interest rate for fixed-rate hire-purchase loans. Interest will now be calculated on the outstanding balance, making early settlements fairer and more transparent for consumers.
- Digital transformation in hire-purchase agreements. The amendments allow digital signatures and electronic delivery of documents to improve efficiency. They also require two levels of due diligence for borrower identity verification to reduce the risk of fraud.
In the first phase beginning June 1, 2026, 11 financial institutions and hire-purchase providers are fully prepared and will begin offering loans in full compliance with the amended Act 212 and its subsidiary regulations. A second phase is targeted for September 2026.
Institutions still in the process of system integration and upgrades have been given a grace period until March 31, 2027. They are encouraged to adopt the new framework as soon as possible and inform the Ministry once the transition is complete.
“This reform demonstrates the Government’s commitment to creating a more transparent and integrity-driven credit ecosystem, enhancing industry governance, and protecting the rights and interests of consumers nationwide,” said Datuk Armizan Mohd Ali, Minister of Domestic Trade and Cost of Living.
Consumers are advised to check with providers and verify all details before finalising any hire-purchase agreement to fully benefit from the new legal provisions.
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