14 banks start offering ‘reducing balance’ method for HP loans
Minister says 80% of 429 hire-purchase providers are also transitioning from the old flat-rate and the Rule of 78 calculation methods.
Fourteen of Malaysia's 20 banks have started providing a reducing balance method for hire-purchase loans, aligning with new amendments to the Hire-Purchase Act, according to Domestic Trade and Cost of Living Minister Armizan Mohd Ali. The remaining six banks plan to complete the transition by the end of this year. Armizan also noted that 80% of the 429 hire-purchase providers registered with the Association of Hire Purchase Companies Malaysia are shifting to both the reducing balance method and the effective interest rate.
The remaining 20% must finalize the transition by March 31, 2027. The new laws, which abolish the Rule of 78 method and the flat interest rate structure, are mandatory for all hire-purchase providers. The Rule of 78, a calculation method for early loan settlements, allocated a larger portion of interest to early instalments, causing borrowers who settled early to retain a high outstanding balance that didn't accurately reflect the loan's true cost.
Under the reducing balance method, interest charges are now calculated based on the remaining principal amount.
Written by urgent.news from Free Malaysia Today's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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- 14 banks start offering ‘reducing balance’ method for HP loans freemalaysiatoday.com
