KUALA LUMPUR, Oct 8 (Bernama) — The Dewan Rakyat today passed the Hire Purchase (Amendment) Bill 2025, aimed at abolishing the flat rate and the Rule of 78 method for fixed-rate hire purchase loans.
A voice vote passed the Bill after being debated by 20 MPs from the government and opposition blocs.
Domestic Trade and Cost of Living Minister Datuk Armizan Mohd Ali, when winding up the debate on the Bill, explained that the abolition of the flat rate and the Rule of 78 method was due to the system being unfair and burdensome to borrowers.
He said the move would be replaced with the effective interest rate and the reducing balance method, which would be more beneficial.
“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.”
“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 said.
Elaborating further, Armizan said the reducing balance method ensured that interest was charged only on the outstanding loan balance.
He said the approach was particularly relevant for early loan settlements compared to the old system, where payments at the initial stage were more focused on interest rather than the loan principal.
“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, and thirdly, it helps identify hidden costs, including compound interest, which could lead to mounting debt,” he said.
— BERNAMA
BERNAMA provides up-to-date authentic and comprehensive news and information which are disseminated via BERNAMA Wires; www.bernama.com; BERNAMA TV on Astro 502, unifi TV 631 and MYTV 121 channels and BERNAMA Radio on FM93.9 (Klang Valley), FM107.5 (Johor Bahru), FM107.9 (Kota Kinabalu) and FM100.9 (Kuching) frequencies.
Follow us on social media :
Facebook : @bernamaofficial, @bernamatv, @bernamaradio
Twitter : @bernama.com, @BernamaTV, @bernamaradio
Instagram : @bernamaofficial, @bernamatvofficial, @bernamaradioofficial
TikTok : @bernamaofficial
