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Hire Purchase Calculator: Flat Rate vs Reducing Balance

Key in your loan details once and compare the old flat-rate method against the new reducing-balance (EIR) method side by side.

From 1 June 2026, the Hire Purchase (Amendment) Act 2026 replaces the old flat-rate + Rule of 78 method with an Effective Interest Rate (EIR) reducing-balance method for new loans. This only applies to new agreements and is rolling out across lenders in phases -- existing loans keep their original terms.

Loan Details

Enter the flat rate as quoted by the dealer/bank -- this calculator derives an equivalent reducing-balance EIR from it to build the "New Method" comparison.

Old Method — Flat Rate

Pre-June 2026

RM0

per month

Total Interest

RM0

Total Payable

RM0

New Method — Reducing Balance

From 1 June 2026 (EIR)

RM0

per month

Total Interest

RM0

Total Payable

RM0

Estimated EIR

0.00%

Monthly Savings

RM0

Total Interest Saved

RM0

Metric Old — Flat Rate New — Reducing Balance

How This Is Calculated

  • Old (flat rate): total interest = principal × flat rate × tenure (years), spread evenly over every month regardless of the declining balance.
  • New (reducing balance / EIR): interest is charged only on the outstanding balance each month, like a standard amortizing loan. The EIR is estimated from your flat rate using the common approximation EIR ≈ 2 × tenure × flat rate / (tenure + 1) -- this is an illustrative conversion, not an official bank figure.
  • Principal: car price minus your down payment.
  • Scope: the new method applies only to hire purchase agreements signed from 1 June 2026 onward, and is rolling out across lenders in phases -- your actual quote may still be flat-rate depending on the lender.
  • Disclaimer: this calculator is a guide only and does not replace an official loan quote from your bank or dealer.

Frequently Asked Questions

What changed with the Hire Purchase (Amendment) Act 2026?

From 1 June 2026, new hire purchase agreements move from flat-rate interest (with the Rule of 78) to an EIR reducing-balance method, where interest is charged on the outstanding balance instead of the full original loan amount.

Does this affect my existing car loan?

No -- it only applies to new agreements signed from 1 June 2026 onward, and rollout is phased across lenders. Existing loans keep their original flat-rate terms unless refinanced.

How is the reducing-balance EIR estimated here?

Using the standard approximation EIR ≈ 2 × tenure(years) × flat rate / (tenure(years) + 1), then amortized like a reducing-balance loan. Treat it as an illustrative estimate, not an official quote.

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