NEW LAW
Hire-Purchase (Amendment) Act 2026 abolishes the flat-rate method. Since 1 June 2026, new car loans move to the fairer reducing-balance method with Effective Interest Rate (EIR), and the Rule of 78 is gone. Banks have a transition period until 31 March 2027, so some loans may still use the old flat rate for now — this calculator supports both so you can compare.
How the new car loan calculation works (HPA 2026)
Before June 2026, almost every Malaysian car loan used a flat interest rate. Under the Hire-Purchase (Amendment) Act 2026, which came into force on 1 June 2026, that method — along with the Rule of 78 — has been abolished. New hire-purchase financing now uses the reducing-balance method and must disclose the Effective Interest Rate (EIR), the same way housing loans already do.
There is a transition period until 31 March 2027 during which banks may still issue new loans under the old method while they upgrade their systems, so you may still encounter flat-rate quotes. That's why this calculator lets you switch between both.
Flat rate vs reducing balance — what's the difference?
| Flat rate (old) | Reducing balance (new) |
|---|
| Interest charged on | Full original loan, every year | Remaining balance only |
| Early settlement | Penalised (Rule of 78 front-loads interest) | Fairer — you save unpaid interest |
| True cost shown? | Hidden — quoted rate looks low | Yes — EIR reflects real cost |
| Rough comparison | A "3% flat" ≈ | ~5.5% EIR |
Worked example
Borrow RM72,000 over 9 years:
- Old flat rate 3.0%: interest = 72,000 × 3% × 9 = RM19,440. Monthly ≈ RM847. The true EIR is around 5.4% p.a.
- New reducing balance at 5.4% EIR: similar monthly, but if you settle early you pay far less interest, because interest stops accruing on money you've already repaid.
The headline number barely changes — but the fairness on early settlement is the real win for borrowers.
How to use this calculator
- Enter the car price and your down payment (minimum is usually 10%).
- Pick your rate. Use the Reducing Balance tab and enter the EIR your bank quotes; or use the Flat Rate tab to see the true EIR of an old-style quote.
- Set your tenure (up to 9 years in Malaysia).
- Read off your monthly instalment, total interest and full payment schedule.
HPA 2026 — News & updates
A plain-language roundup of the latest developments around the Hire-Purchase (Amendment) Act 2026, in our own words. Follow the links to read the full reports from the original sources.
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paultan.org · 16 March 2026
New Act comes into force on 1 June 2026 — flat rate and Rule of 78 gone
The Hire-Purchase (Amendment) Act 2026, gazetted on 30 January 2026, took effect on 1 June 2026. It abolishes the flat interest rate and the Rule of 78 for hire-purchase (car) financing, moving all new loans to the reducing-balance method with the Effective Interest Rate (EIR) disclosed.
Read on paultan.org
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Association of Banks in Malaysia · 16 March 2026
Banks to offer goodwill early-settlement discounts during the switch
ABM, together with AIBIM and ADFIM, announced that from 1 June 2026 banks will give goodwill discounts to eligible borrowers who settle their old flat-rate / Rule of 78 loans early — so their outstanding balance is more comparable to the new reducing-balance method. It applies to individuals and micro/small businesses whose accounts are in good standing.
Read the ABM statement
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The Edge Malaysia
BNM: providers may offer fixed-rate or variable-rate loans
Bank Negara Malaysia clarified that under the amended Act, financiers can offer either fixed-rate or variable-rate hire-purchase financing — both calculated on the reducing balance with EIR shown. BNM noted the move aligns Malaysia with markets such as Australia, New Zealand and the UK, which had already dropped the Rule of 78.
Read on The Edge Malaysia
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CIMB Malaysia · Official notice
Banks publish customer notices on the new method
Individual banks began issuing customer notices explaining their new fixed-rate reducing-balance hire-purchase product as they upgrade systems during the transition period, which runs until 31 March 2027. Check your own bank's notices for the exact rates and terms that apply to you.
Read CIMB's notice
Further reading: RinggitPlus, iMoney and Motorist have explainers on the new rules. Summaries above are our own; all rights to the original articles belong to their publishers.
Frequently asked questions
Is the flat rate really gone in 2026?
Yes. The Hire-Purchase (Amendment) Act 2026 abolished the flat-rate method and the Rule of 78 from 1 June 2026. However, banks have until 31 March 2027 to fully switch their systems, so during this transition some new loans may still be quoted on the old flat rate. Always ask your bank which method and what EIR applies.
What is the Effective Interest Rate (EIR)?
EIR is the true annual cost of your loan, calculated on your reducing balance. Because a flat rate charges interest on the full original amount for the whole tenure, its EIR is roughly 1.8× the flat rate — e.g. a 3% flat rate is about 5.4% EIR.
What is the maximum car loan tenure in Malaysia?
Up to 9 years (108 months) for most hire-purchase car loans. A longer tenure lowers your monthly instalment but increases total interest paid.
How much down payment do I need?
Typically a minimum of 10% of the car price, meaning you can finance up to 90%. A larger down payment reduces your loan amount, monthly instalment and total interest.
Does this calculator include insurance and fees?
No. It estimates principal and interest only. Road tax, insurance, and any bank processing fees are separate. Use it as a guide and confirm the exact figures with your bank.
