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Starting 1 June, the amended Hire Purchase Act will officially come into force, bringing a wave of reforms designed to protect consumers and modernise the system
Domestic Trade and Cost of Living Minister Datuk Armizan Mohd Ali announced the changes, noting that they are part of a broader mission to beef up consumer rights.
According to the New Straits Times, one of the most significant shifts is the total abolition of the "Rule of 78" and flat interest rates.
Previously, these methods front-loaded interest payments, meaning if you tried to settle your loan early, you were often stuck with a massive balance that did not feel fair.
"Borrowers wishing to settle their loans early faced high outstanding balances that did not reflect the actual cost of the debt," Armizan explained.
Under the new 2026 amendments, loans will now use a reducing balance method and an effective interest rate
This means interest is calculated only on what you still owe, making early settlements more transparent and cheaper. Here's how to calculate your car loan starting June 1.
The updated law also embraces digital transformation by allowing digital signatures and electronic document submission, making the application process smoother.
To keep things safe, lenders are now required to conduct proper due diligence to verify borrower identities, a move that helps reduce fraud risks.
"The amendments introduce the requirement for lenders to conduct due diligence in verifying the identity of borrowers as a measure to reduce fraud risks," Armizan said.
A transition period may be granted to loan providers who need more time to update their systems and documentation before the 1 June 2026 deadline
However, those already ready can start offering these new, fairer agreements immediately, Armizan said.
For those still on the old flat-rate system, there's some good news regarding early settlements.
The minister said banking institutions would offer a "goodwill discount" for those under the old structure.
This ensures that if you choose to pay off your debt early, your outstanding balance will be more in line with the new, fairer rates.
