Recently, Finance Minister II Amir Hamzah Azizan shared that Bank Negara Malaysia (BNM) is reviewing whether to replace Regulation 78 (Rule 78) — a loan repayment calculation method that has long affected many Malaysian borrowers.
🤔 What’s the issue with Rule 78?
🤔 Why? Not good meh?
🤔 What kind of loan is using Rule 78 currently?
🔎 What is Rule 78?
Rule 78 is a method used by financial institutions to calculate how you repay your loan.
- It front-loads interest. Apa maksud? Meaning, in the early years of your loan, most of your instalment goes to interest, not the loan principal.
- By the time you reach the later years, you’ve already paid a huge chunk of interest.
What kind of loan is using Rule 78 currently?
The Rule of 78 is a loan interest calculation method, historically used for personal loans and car loans (hire purchase), which front-loads interest.
Why is it a problem? 👀
- Discourages early settlement
If you pay off your loan early, you don’t save much because most of the interest has already been collected upfront. (that's why I don't settle my car loan earlier, it's not that I don't have money 😁...) - Borrowers bear heavier costs
Some economists estimate borrowers could end up paying up to 50% of the loan amount in interest. - Favours financial institutions
This method ensures banks get their interest first, while borrowers lose flexibility.
What could change?
Economists and consumer groups are urging BNM to:
- Replace Rule 78 with the Effective Interest Rate (EIR) method, which spreads out interest more fairly throughout the loan tenure.
- This would make loans less burdensome and allow borrowers to save more if they settle early.
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| Here’s an example of how the Rule of 78 works in comparison to the reducing balance method, as provided in the CP2 report |
📌 📌 📌
Licensed financial planner, Mr. Alex Yeoh, take this opportunity to remind loan borrowers:
- Understand your loan agreement before signing — ask how interest is calculated.
- Compare between banks — not just interest rates, but also repayment methods.
- Plan repayment early — loans should be tools, not traps.
He said it’s encouraging that BNM is reviewing this rule. A fairer system will give Malaysians more breathing room and align with the goal of improving financial literacy and resilience.
So, what do you think — should Rule 78 be abolished? 💬 💬💬
#Rule78 #BankNegara #PersonalFinance #FinancialLiteracy #HirePurchase #PersonalLoan #InterestRate #RepaymentMethod
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