Yesterday we shared how the Hire-Purchase (Amendment) Act 2025 replaces the old flat rate system with the Effective Interest Rate on a reducing balance. Today we want to go one step further. Knowing the law has changed is one thing. Knowing what to do about it is another.

𝐃𝐨𝐞𝐬 𝐭𝐡𝐢𝐬 𝐦𝐞𝐚𝐧 𝐲𝐨𝐮𝐫 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐩𝐚𝐲𝐬 𝐥𝐞𝐬𝐬 𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭? Not automatically. The EIR reflects the true financing cost, but the Act does not prescribe what rate a lender must offer. Lenders may reprice their products under the new framework. What changes is transparency and calculation methodology. Before signing any new hire purchase agreement, require your financier to disclose the EIR in writing. The EIR is now the standardised measure of financing cost across all hire purchase providers. Use it to compare offers from different financiers on a like-for-like basis before committing.

𝐃𝐨𝐞𝐬 𝐞𝐚𝐫𝐥𝐲 𝐬𝐞𝐭𝐭𝐥𝐞𝐦𝐞𝐧𝐭 𝐧𝐨𝐰 𝐦𝐚𝐤𝐞 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐬𝐞𝐧𝐬𝐞 𝐟𝐨𝐫 𝐲𝐨𝐮𝐫 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬? Under the old flat rate system, settling a hire purchase loan early offered limited savings because interest was already front-loaded into the agreement. Under the reducing balance method, your remaining interest obligation is based only on the outstanding principal at the time of settlement. Early settlement now has a direct and measurable impact on your total financing cost in a way the old system did not allow. The Act also provides that for existing hire purchase agreements already in force, a business and its financier may mutually agree to apply the new calculation method for the purpose of determining the net balance due on early settlement.

𝐖𝐡𝐚𝐭 𝐡𝐚𝐩𝐩𝐞𝐧𝐬 𝐢𝐟 𝐲𝐨𝐮𝐫 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐞𝐫 𝐫𝐞𝐯𝐢𝐬𝐞𝐬 𝐭𝐡𝐞 𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐫𝐚𝐭𝐞 𝐦𝐢𝐝-𝐚𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭? The Act now requires the owner to serve written notice on your business at least 14 days before any revision to the effective interest rate takes effect. The notice must specify the revised rate and the corresponding change to instalment amounts or number of instalments. Failure to provide this notice is an offence under the Act. This protects your business from sudden changes to your repayment obligations without adequate warning.

𝐖𝐡𝐚𝐭 𝐬𝐡𝐨𝐮𝐥𝐝 𝐲𝐨𝐮𝐫 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐯𝐞𝐫𝐢𝐟𝐲 𝐰𝐢𝐭𝐡 𝐲𝐨𝐮𝐫 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐞𝐫? Ask what EIR applies to your next hire purchase agreement and compare it across multiple financiers before signing. If you have existing agreements, ask whether your financier is willing to apply the new early settlement calculation under the transitional provisions. Confirm that any future rate revisions will come with the required 14-day written notice.

Our CFO advisory team helps businesses stay ahead of regulatory changes without disruption. Reach us on WhatsApp at 010-246 2151.

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