Dewan Rakyat Passes Hire Purchase Bill 2025 Promising Fairer Interest And Clearer Loan Transparency For Consumers

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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. — Bernama picKUALA LUMPUR, Oct 8 — 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. 
Earlier, when tabling the Bill for its second reading, Armizan said that apart from the abolition of the flat interest rate and the Rule of 78 method, the amendment also allowed for the use of modern technology in hire purchase agreements and updates.
In addition, he said the Bill proposed an amendment to Section 6B relating to the adoption of a new method for calculating term charges, aimed at providing a time frame for owners to notify hirers of any changes to their financial obligations following a review of the effective interest rate.
Meanwhile, the majority of government and opposition MPs who took part in the debate expressed their support for the amendment, describing it as fairer and less burdensome to borrowers, while also suggesting several improvements.
Datuk Suhaimi Nasir (BN-Libaran) said the Bill should offer broader consumer protection by requiring the disclosure of the actual loan cost.
He also proposed an automatic moratorium during crises, particularly for the M40 and B40 groups affected by disasters, job losses or health crises, as well as the establishment of a special digital hire purchase tribunal to resolve minor disputes without the need for lawyers.
Abdul Latiff Abdul Rahman (PN-Kuala Krai), on the other hand, suggested that a special section on Islamic hire purchase be added to the Bill to streamline between conventional and Shariah-compliant transactions so that Muslim consumers would not remain tied to systems involving elements of usury.
The sitting continues tomorrow. — Bernama 

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