If your business finances vehicles, machinery or equipment under hire purchase, there is a legal change you need to know about. Over the next two days we will be breaking this down for you, starting with what has actually changed and why it matters.

Every time your business signs a hire purchase agreement to finance a vehicle, machinery or equipment, the total interest cost is locked in from day one. Under the old flat rate system, that interest was calculated on the full original loan amount for the entire tenure, regardless of how much principal your business had already paid down.

The Hire-Purchase (Amendment) Act 2025 ends this. The flat rate method has been replaced with the Effective Interest Rate calculated on a reducing balance. Interest is now charged only on the outstanding principal at each point in the agreement. As your business services the loan and the principal reduces, so does the base on which interest is computed.

The Act also mandates full disclosure. Before your business signs any new hire purchase agreement, the financier is required to state the EIR clearly in the agreement documentation. This gives your finance team a standardised, comparable figure to evaluate financing offers across different providers rather than relying on headline instalment amounts that obscure the true cost.

For variable rate agreements, the reference rate anchored to Bank Negara Malaysia's prevailing overnight policy rate now serves as the pricing benchmark. The old references to base lending rate and statutory rebate have been removed from the Act entirely.

Tomorrow we will walk you through the practical questions your business should be asking your financier before your next hire purchase agreement.

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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