What changed on 1 June 2026
Under the Hire-Purchase (Amendment) Act 2026, new hire purchase (car) loans must be priced with the reducing-balance method and quoted as an Effective Interest Rate (EIR). Flat rates and the Rule of 78 no longer apply to new loans. Loans signed earlier, or with banks that have not yet switched (all must by 31 December 2026), may still use a flat rate. Choose the matching method above.
How the instalment is calculated
Reducing balance (new loans): interest is charged each month on the balance you still owe, so it falls as you repay. The monthly instalment is fixed:
Monthly instalment = loan × r ÷ (1 − (1 + r)^−months), where r is the annual rate ÷ 12.
Flat rate (older loans):
- Interest = loan amount × annual rate × number of years
- Total repayment = loan amount + interest
- Monthly instalment = total repayment ÷ number of months
Worked example: reducing balance
RM100,000 car, 10% down payment, 3% per year, 9-year tenure:
- Loan: RM100,000 − RM10,000 = RM90,000
- Monthly instalment over 108 months: RM951.92
- Total repayment: RM951.92 × 108 = RM102,807.86
- Total interest: RM102,807.86 − RM90,000 = RM12,807.86
Comparison: the same loan at a 3% flat rate
- Interest: RM90,000 × 3% × 9 = RM24,300
- Total repayment: RM114,300
- Monthly instalment: RM114,300 ÷ 108 months = RM1,058.33
A 3% flat rate is equivalent to an effective rate of about 5.5% a year, which is why the reducing-balance figure above is so much lower.
Why your number may differ
Banks may round the instalment up, and an “on-the-road” price may include insurance, road tax and registration that are not financed. Some Islamic financing uses a different profit structure.