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How the Hire-Purchase (Amendment) Act 2026 Changes Your Car Loan
For decades, Malaysian car loans were quoted using a "flat rate" that made borrowing look cheaper than it really was. The Hire-Purchase (Amendment) Act 2026 changed that. If you are buying a car in Malaysia now, here is what the new rules mean for your monthly instalment — and why the interest rate on your quote is not what it seems.
The old way: flat rate
Under the old flat-rate method, interest was charged on the full original loan amount for the whole tenure, regardless of how much you had already paid off. So if you borrowed RM90,000 at "3% flat" over 9 years, the interest was simply 3% × RM90,000 × 9 = RM24,300, added on top and divided into equal monthly instalments.
The problem is that you are steadily paying down the loan, yet still being charged interest as if you owed the full amount the entire time. That makes the flat rate look small while the true cost of borrowing is much higher.
The new way: reducing balance and EIR
Since 1 June 2026, the Hire-Purchase (Amendment) Act 2026 requires car loans to use the reducing-balance method. Interest is calculated only on the amount you still owe, which falls a little every month as you make payments. This is the same fair method already used for housing loans.
Because the balance reduces, the rate that actually applies is expressed as an Effective Interest Rate (EIR) — the honest, apples-to-apples annual rate. As a rough rule of thumb, a flat rate roughly doubles when converted to an equivalent EIR, so a "3% flat" quote is closer to 5–6% EIR in real terms.
A worked ringgit example
Say you finance RM90,000 over 9 years (108 months):
| Method | How interest is charged | Rough monthly instalment |
|---|---|---|
| Flat rate (old, 3% flat) | On the full RM90,000 for all 9 years | ~RM1,058 |
| Reducing balance (new, ~5.6% EIR) | Only on the balance you still owe | ~RM1,058 |
The two can produce a similar monthly figure — which is exactly why the flat rate was misleading. A "3% flat" deal is not a 3% loan; expressed fairly it is roughly 5.6% a year. The new law forces lenders to show you the reducing-balance reality so you can compare deals honestly. Use our Car Loan Calculator to plug in your own price, deposit, rate and tenure and see both methods side by side.
What this means for you as a buyer
- Read the EIR, not the flat rate. The EIR is the number that lets you compare one bank's offer against another fairly.
- A bigger deposit still helps. Financing less means less interest overall, whichever method is used.
- Shorter tenure, less total interest. Stretching a loan to 9 years lowers the monthly payment but increases the total you pay.
- Early settlement is fairer now. With reducing balance, settling early means you stop paying interest on money you no longer owe.
Frequently asked questions
Does the new law make car loans cheaper?
Not automatically. It makes the true cost clearer. Lenders still set their own rates, but they must now express and charge them on a reducing-balance basis, so you can see what you are really paying.
Is my existing car loan affected?
The change applies to how new hire-purchase agreements are calculated. If you already have a loan on the old terms, check with your bank on how it is treated — but always confirm figures directly with the lender.
What is a good EIR for a car loan?
There is no single answer; it depends on the bank, the car (new vs used) and your profile. The point of the new rules is that you can now shop around and compare EIRs directly instead of being confused by flat rates.
Try the Car Loan Calculator →This article is general information only, not financial advice. Figures are estimates and rates change — always confirm with your bank or lender. See our full Disclaimer.