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Car Loan in Malaysia — Hire Purchase Rates & Approval Tips

· Roda Editorial · Updated

car loanfinancehire purchase
General information, not financial advice. Check with your bank or insurer before you sign.

Most cars in Malaysia are bought with hire purchase financing. In 2026 the rules changed: the Hire-Purchase (Amendment) Act 2026 took effect on 1 June 2026 and moves hire purchase away from the flat rate. This guide explains how hire purchase works, what the new rules mean when you compare offers, and how to prepare an application.

This is general information, not financial advice. Read the Product Disclosure Sheet (PDS) and the agreement, and ask your bank about your situation.

How hire purchase works

Under hire purchase, the bank buys the car and you hire it from the bank, paying monthly instalments. The bank's ownership claim is registered with JPJ. When you have paid everything, the claim is removed and the car is fully yours.

Islamic hire purchase (often called AITAB) works on a lease followed by a sale: ownership passes to you through a sale contract after the final instalment. Ask your bank how the profit rate is calculated.

What changed in 2026

According to Bank Negara Malaysia's consumer guide and the Association of Banks in Malaysia:

  • Reducing balance and the effective interest rate (EIR). Hire purchase moves to the reducing balance method. Interest is charged on the amount you still owe, and the cost is shown as an EIR.
  • The flat rate and the Rule of 78 are abolished for new financing under the new rules.
  • Transition period. Banks have until 31 March 2027 to update their systems. During this time, some banks may still offer new financing on the old flat rate basis while others already use the reducing balance method. Ask which method your offer uses.
  • Existing agreements keep their original terms.
  • Early settlement of older loans. From 1 June 2026, banks offer a goodwill discount to eligible customers who settle fixed-rate Rule of 78 financing early. Exclusions apply, for example for accounts more than 90 days in arrears.

Flat rate and EIR are not the same

A flat rate is charged on the original loan amount for the whole tenure, even as you pay it down. An EIR reflects the true cost on a reducing balance. For the same loan, the EIR is noticeably higher than the flat rate quoted under the old method. BNM's guide gives an example where a flat rate of 3% a year over nine years equals an EIR of about 5.5%.

When you compare offers, always ask for the EIR and the total amount payable, not only the monthly instalment.

How much to borrow

  • Down payment. Banks usually ask for a down payment. A larger one reduces the amount you borrow and the total interest.
  • Tenure. A longer tenure lowers the monthly instalment but increases the total cost. Choose the shortest tenure you can comfortably afford.
  • Affordability. Banks look at your income, existing commitments and credit record. Keep the instalment within a level that leaves room for insurance, road tax, fuel, parking and maintenance.

Used car loans

For a used car, the bank will ask about the car as well as you:

  • The car's age and value affect how much the bank will lend.
  • PUSPAKOM says a hire purchase inspection (B7) is required when you buy a used vehicle with hire purchase. See our PUSPAKOM guide.
  • If the seller still has a loan on the car, your bank pays the seller's bank first. See how to sell a car with an outstanding loan for how the settlement works.

Preparing your application

Banks set their own document lists. Commonly asked:

  • IC.
  • Proof of income: recent payslips and bank statements, or business documents if you are self-employed.
  • EPF statement or tax return, where asked.
  • The car's details or the dealer's quotation.

Check your own credit report before you apply, so there are no surprises. Settle overdue accounts first if you can.

Read the PDS before you sign

The Product Disclosure Sheet sets out the key terms in a standard format. Look for:

  1. The interest method and the EIR.
  2. The total amount payable over the tenure.
  3. Fees and charges, including late payment charges.
  4. Insurance requirements. Banks commonly require comprehensive insurance for the whole tenure.
  5. What happens if you miss payments.

Missed payments and repossession

If you fall behind, the bank can start repossession under the Hire-Purchase Act 1967, after giving the notices the Act requires. Talk to your bank early if you expect trouble. AKPK, the credit counselling agency set up by Bank Negara Malaysia, offers free counselling and a debt management programme.

Do not take over a loan informally

"Sambung bayar" deals, where someone takes your car and continues your instalments without the bank's consent, break the Hire-Purchase Act 1967. The car stays in your name, and the bank can still repossess it. Roda does not approve ads that offer loan takeovers.

If you have a complaint

Raise it with your bank first. For banks regulated by BNM, you can contact BNMLINK, or bring an unresolved dispute to the Financial Markets Ombudsman Service (FMOS). For lenders that are not banks, BNM's guide points to the Ministry of Domestic Trade and Cost of Living (KPDN).

Next steps

Compare cars and prices on Roda, read how to buy a used car, and set aside a budget for insurance and road tax.

Sources

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