Goodwill discounts for early settlement are on the way, and for borrowers with existing car hire-purchase agreements, that is the part to keep an eye on.
In a joint statement, the Association of Banks in Malaysia, the Association of Islamic Banking and Financial Institutions Malaysia and the Association of Development Finance Institutions of Malaysia said eligible customers who choose to settle certain fixed-rate hire-purchase loans early will be offered discounts from June 1, when the Hire-Purchase (Amendment) Act 2026 takes effect.
The law brings a fairly major change to how hire-purchase financing is handled. The Rule of 78 method used for early settlement will be scrapped, and so will the flat interest-rate structure for fixed-rate hire-purchase loans.
In its place, banks will move to a reducing balance method together with the Effective Interest Rate (EIR), so borrowers get a clearer picture of the actual cost of financing.
Under the old setup, settling early did not always reduce the outstanding amount in a way that felt easy to understand.
The new framework is meant to make comparisons across loans easier and show the real borrowing cost more clearly.
There is, however, a transition period.
Although the law starts on June 1, banks have until March 31, 2027 to complete the required system, process and infrastructure upgrades. During that period, they may still offer new hire-purchase financing under the Rule of 78 while systems are being updated.
Some banks are also expected to start offering the reducing balance method earlier.
For existing customers, the goodwill discount is the key detail. From June 1, it will apply to eligible individuals as well as micro and small businesses with fixed-rate hire-purchase agreements that use the Rule of 78, as long as the agreement was entered into before June 1 or during the transition period ending March 31, 2027, and the borrower settles before maturity.
The discount will vary from one bank to another. Each lender will calculate it based on the features of the customer’s agreement, including the financing tenure and the timing of early settlement.
The exact amount will only be disclosed when the customer asks for an early-settlement quote.
Eligibility is not automatic. At the point of application, the account must not be more than 90 days in arrears, under legal action or a repossession order, or already under restructuring, rescheduling or a formal debt-management programme.
