Federation president Tony Khor says the new hire-purchase financing system helps buyers better understand the actual cost of financing by transitioning from the long-standing flat-rate and Rule of 78 interest calculation methods to the reducing-balance and effective interest rate (EIR) system.
Khor said this transition will allow customers to make better informed purchasing decisions as many have historically found vehicle financing calculations difficult to understand, particularly when settling loans early.
Under the previous system, a substantial portion of interest was effectively collected during the earlier stages of the loan tenure, resulting in lower-than-expected savings when borrowers opted for early settlement.
“With the new reducing-balance method, interest will be calculated based on the outstanding principal balance rather than the original loan amount,” he said in a statement today.
“As a result, consumers will benefit from greater transparency in financing costs, easier comparison between financing packages offered by different financial institutions, more equitable savings when making early loan settlements, and better understanding of actual financing costs.”
Khor also said that a more transparent financing environment will strengthen public confidence in the automotive market.
Consumers who clearly understand their financing commitments are more likely to make responsible and informed purchasing decisions.
Responding to concerns that the new financing system may make vehicle ownership more difficult or expensive, Khor said that the reforms accompanying the Act’s implementation are intended to provide greater transparency, fairness, and protection for borrowers.
Khor went on to urge Putrajaya, Bank Negara Malaysia, and financial institutions to ensure sufficient transition arrangements are in place.
He said FMCCAM believes that successful implementation requires comprehensive public education, industry readiness, and adequate system upgrades.
Therefore, he recommended measures such as extensive public awareness campaigns, clear and standardised financing disclosures, and reasonable implementation timelines for financial institutions.