Hire Purchase Act 2026 takes effect tomorrow – Armizan

Malaysia is set to implement the Hire Purchase Act (Amendment) 2026, along with the Hire Purchase (Terms and Charges) Regulations 2026, effective June 1, 2026. This legislative update is designed to significantly enhance consumer protection within the hire purchase financing system, making it more equitable, transparent, and competitive.

According to Datuk Armizan Mohd. Ali, the Minister of Domestic Trade and Cost of Living, 11 financial institutions and hire purchase providers are ready to offer loans under the new provisions. The amendment to the Hire Purchase Act of 1967, passed by Parliament in 2025, is part of a broader effort to strengthen the legal framework governing consumer credit.

A primary focus of the amendment addresses long-standing consumer complaints regarding hidden interest charges and excessively high outstanding loan balances, even when early settlements are made. Previously, under the old system, a significant portion of early loan installments went towards paying interest rather than the principal. The new act abolishes the "flat rate" interest system and the Rule 78 method.

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The enforcement of this act is to strengthen consumer protection and ensure a fairer, more transparent, and competitive hire purchase financing system.

Instead, the amended act introduces the "Baki Berkurangan" (reducing balance) method and the "Kadar Faedah Efektif" (effective interest rate) for fixed-rate hire purchase loans. This means interest will be calculated based on the outstanding loan balance, ensuring that early loan settlements are more transparent and fair to consumers. Furthermore, the amendment permits the use of digital signatures and electronic document submission, improving process efficiency and reducing fraud risks through identity verification requirements.

The second phase of the act's implementation is targeted for September 2026, with a transition period until March 31, 2027, for institutions still integrating their systems. Minister Armizan stated that these reforms underscore the government's commitment to fostering a transparent and integrity-driven credit ecosystem, improving industry governance, and safeguarding the rights of consumers nationwide.

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Through this method, interest is calculated based on the current loan balance, making early loan settlements more transparent and fair to consumers.