Fourteen Malaysian banks introduce declining balance method for hire-purchase loans

Fourteen commercial banks in Malaysia have begun offering hire-purchase loans using the declining balance method, marking a notable transition in the automotive financing sector. The move reflects growing industry momentum toward alternative calculation methods that may offer borrowers greater transparency in how interest charges are computed over the loan period.

According to data on hire-purchase service providers, approximately 80 percent of the 429 firms offering such services have shifted away from the conventional flat-rate and Rule of 78 methodologies. The declining balance approach calculates interest based on the outstanding loan amount, which decreases as borrowers make repayments, potentially resulting in lower overall interest costs compared to flat-rate structures.

The banking sector's adoption of the declining balance method indicates a broader industry realignment toward more borrower-friendly calculation approaches. This transition comes amid increased consumer awareness regarding financing terms and growing regulatory focus on transparency in lending practices across the region.

The shift by the majority of hire-purchase providers suggests the declining balance method is becoming the market standard, though the pace of adoption among the full provider base continues to evolve. Financial institutions offering this option position it as an alternative for consumers comparing hire-purchase agreements across different lenders.