Fourteen banks adopt reducing balance method for car loans under new Hire Purchase Act
Fourteen banks adopt reducing balance method for car loans under new Hire Purchase Act
Following the implementation of the Hire Purchase (Amendment) Act 2026, the landscape of automotive financing is undergoing a major transformation. According to the Ministry of Domestic Trade and Costs of Living (KPDN), 14 out of 20 major banks have now transitioned to offering reducing balance interest rates for vehicle loans.
The legislative shift follows the formal gazetting of the Act on January 30, 2026, with official implementation taking effect on June 1, 2026. This amendment marks a significant move toward a more consumer-centric financing model by encouraging the adoption of the reducing balance method over traditional fixed-rate calculations. Under this system, interest is calculated based on the diminishing principal amount rather than the original loan sum, offering a more equitable structure for borrowers as they pay down their debt.
While a clear majority of the nation's banking institutions have already integrated these new terms into their product offerings, six banks are still in the process of adjusting their frameworks to comply with the updated law. The KPDN continues to monitor the sector to ensure a smooth transition across all financial providers. For car buyers, this regulatory milestone promises increased transparency and improved long-term affordability within the automotive credit market.
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