BM
Eng
May 29, 2026
8 min read
Starting 1 June 2026, the Hire-Purchase (Amendment) Act 2026 (HPAA) is bringing major reforms to motorcycle financing in Malaysia.
Motorcycle financing in Malaysia is undergoing a major reform. The Hire-Purchase (Amendment) Act 2026 (HPAA) introduces terms like "EIR" and "reducing balance method," replacing traditional flat interest rates to provide greater transparency for Parkson Credit customers. The shorter tenure you take, the lower the interest rates.
Effective 1 June 2026, this KPDN-directed legislation mandates clearer disclosure of financing costs by addressing three outdated industry practices.
1. Abolishment of the Rule of 78
The Rule of 78, which front-loaded interest and penalized early settlement, is abolished for new and eligible existing agreements from 1 June 2026.
2. Abolishment of the Flat Rate Structure
Flat interest rates, which often understate the true cost of financing by ignoring the reducing principal, are replaced by the reducing balance method.
3. Introduction of the Effective Interest Rate (EIR) and Reducing Balance Method
New financing must use the Effective Interest Rate (EIR) on a reducing balance basis. This method, common in mortgages, calculates interest only on your outstanding debt, ensuring a transparent comparison across products. Under the revised regulations for fixed-rate financing, the EIR is subject to a maximum capped rate set at 17% p.a. for loans with tenures of up to 5 years. Keep in mind that choosing a shorter tenure will generally have lower total interest charged over the course of the loan, as the maximum rates are determined based on the conversion from flat rates by loan tenure.
Existing iDEAL HP agreements remain under their original terms, but customers now benefit from new protections.
The Goodwill Discount on Early Settlement
From 1 June 2026, Parkson Credit offers a goodwill discount for early settlement on eligible existing agreements to better align outstanding amounts with reducing balance calculations.
Eligibility for the Goodwill Discount
You may be eligible if:
Your hire-purchase agreement was entered into before 1 June 2026 or during the transition period ending 31 March 2027; and
You wish to fully settle the outstanding balance before the contractual maturity date.
Eligibility excludes accounts with 90+ days of missed payments, legal proceedings, or restructuring arrangements under a repossession order..
During the transition period (1 June 2026 to 31 March 2027), Parkson Credit will progressively migrate systems to the reducing balance method. New applicants should enquire about currently available methods and their corresponding EIR.
For more information on these updates, current financing offers, or how this impacts your upcoming vehicle purchase, please refer to your motorcycle dealers.
Aligning with global standards, this reform provides customers with clarity on true costs, easier comparability across providers, and fairer early settlement outcomes.
