Malaysian banks adopt fairer loan calculation method
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Armizan Mohd Ali, Malaysia’s domestic trade and cost of living minister, announced that 14 banks began using a reducing balance method for hire-purchase (HP) loans, replacing older flat-rate and Rule of 78 systems.
The Rule of 78 previously calculated early loan settlements in a way that unfairly charged borrowers high interest. The amended Hire-Purchase Act now requires all 429 registered hire-purchase providers to calculate interest based on the remaining loan principal.
The Association of Hire Purchase Companies Malaysia reports that 80% of its members are already switching to the reducing balance method and displaying effective interest rates. The remaining 20% must complete the change by March 31, 2027, and the final six banks will transition by December 31 of this year. The new law makes the transition mandatory for all providers, aiming to offer borrowers a more accurate reflection of loan costs and fairer rebates when settling debts early.
