Work out how much it costs to settle your flat-rate car loan early under the Rule of 78, and how much interest you really save.
Amount to settle today
RM 39,186.89
24 instalments of RM 1,725.00 left, less a RM 2,213.11 interest rebate
Amount to settle today: RM 39,186.89
For flat-rate car loans signed before the new hire-purchase rules (in force 1 June 2026). The Rule of 78 loads interest into the early months, so you save less than you'd expect. Many banks now offer goodwill discounts on early settlement of older loans; ask yours for the exact figure, which may add charges for the settlement month. Loans on the new effective-rate method save more: use the loan prepayment calculator.
RM90k at 3% flat, 5 years, 36 months paid
A RM2,213.11 rebate, not the RM5,400 a straight-line split would give.
RM39,186.89 to settle
Same loan, settled after 12 months
The earlier you settle, the more of the front-loaded interest you avoid.
Bigger rebate
How the figures above are worked out — the rules, rates and reasoning behind every line.
Car loans signed before 1 June 2026 use a flat rate, and the interest rebate for settling early is worked out with the Rule of 78. It assigns the most interest to the first months, so by the halfway point you've already paid well over half the interest.
Loans signed under the amended Hire-Purchase Act use an effective rate on the reducing balance instead, where every extra payment saves interest straight away.
Rebate = total interest × n(n + 1) ÷ N(N + 1), where n is the number of instalments still to come and N is the total number of instalments.
Amount to settle = the instalments still to come − the rebate. Your bank's figure may differ slightly for the settlement month and any arrears.
On a flat-rate loan, the saving is small in the second half of the loan because most of the interest has already been charged. Early in the loan it saves more. Compare the rebate with what the money could earn elsewhere.
For car loans signed before 1 June 2026, yes. The Hire-Purchase (Amendment) Act 2025 abolished it for new fixed-rate loans; banks could keep using it for new loans until 31 March 2027.
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