Bank Negara Malaysia has released an updated Policy Document on Personal Financing, setting out a new series of measures to promote more responsible borrowing and lending practices across the retail credit market.

Published on 30 September 2025, the policy replaces the earlier document from December 2023 as well as the enhanced consumer safeguards letter issued in January 2025.

The move underscores the regulator’s intent to keep pace with developments in the personal financing segment that could lead to unsustainable household debt.

Among the most notable changes are clearer rules on loan tenure, a ban on outdated interest calculation methods, stronger disclosure obligations, and a financial literacy requirement for large loan applicants.

The framework also pulls together existing rules around Buy Now Pay Later (BNPL) products, reaffirming their place under personal financing regulations.

Together, these measures signal a more structured and disciplined approach to personal loan rules in Malaysia.

Policy Objective and Applicability

The policy applies to licensed banks, licensed Islamic banks, and prescribed development financial institutions that offer personal financing.

The policy specifies that its rules do not apply to financing for major assets like property and vehicles. Furthermore, it excludes other credit facilities such as credit cards, charge cards, and revolving credit with no fixed tenure.

Personal financing through salary deduction schemes, however, remains within scope.

While the policy is effective immediately, certain provisions, such as covering loan tenure, interest calculation methods, and financial education requirements, will only apply from 1 January 2027.

Bank Negara Malaysia implemented a phased timeline to allow financial service providers (FSPs) sufficient time to align their systems and products with the new standards.

Maximum Tenure and Reporting Rules Get Sharper

The 10-year maximum tenure for personal financing isn’t new, but BNM has now closed a long-standing gap around property-secured loans.

Previously, top-up or refinancing arrangements were sometimes treated differently, allowing borrowers to access larger amounts with longer terms.

Under the updated policy, FSPs must now treat certain types of financing offered under a home loan as a personal financing product.

The requirement applies to additional financing that exceeds the original loan amount or is secured against a fully paid-off (unencumbered) property.

This brings it under the same 10-year limit and debt service ratio (DSR) calculations as other personal loans.

Plus, Bank Negara Malaysia now requires all lenders to use a standardised format when reporting these facilities to the Central Credit Reference Information System (CCRIS).

New designations like “Personal Loan under Refinancing (Secured against Property)” and “Personal Loan through Top-up (Secured against Property)” must be used, while unencumbered property loans will have their own category.

Capital treatment remains unchanged.

BNM Flat Rate Ban and Rule of 78 Malaysia

Perhaps the most significant shift is the BNM flat rate ban and the decision to outlaw the Rule of 78 in Malaysia.

Both methods load interest costs toward the start of the repayment schedule, often making loans seem cheaper than they really are and discouraging early repayment.

From now on, personal financing must use either fixed or floating rates on a reducing balance basis.

With this update, Bank Negara Malaysia is bringing local financing practices closer to international standards to enhance transparency for consumers.

Clearer Disclosures for Borrowers

Bank Negara Malaysia now stipulates stricter disclosure standards for financial providers on how they present financing costs to consumers.

Lenders must now disclose the effective interest or profit rate, total repayment amounts, and the method of calculation upfront, including in advertisements and promotional materials.

For floating rate products, they also have to explain the scenarios that could lead to rate changes and how these would affect borrowers.

In line with the Product Transparency and Disclosure framework, these new rules require financial providers to give consumers a clearer picture of their obligations before they accept a financing offer.

Financial Education Requirement Loans

Another important addition is the financial education requirement for loans exceeding RM100,000.

Anyone applying for personal financing above this amount must complete a financial education module, either through the FSP or the Credit Counselling and Debt Management Agency (AKPK).

The policy recommends that lenders provide the same training to higher-risk borrowers, including those with limited experience using financial products.

This requirement comes into force in 2027.

BNPL Regulations Malaysia Remain Tight

BNPL continues to sit firmly within the personal financing framework, reflecting its growing role in consumer credit.

The policy reinforces BNPL regulations in Malaysia, including affordability assessments, checks on repayment histories, prohibitions on lending to bankrupt individuals, and mandatory CCRIS reporting.

Bank Negara Malaysia has also tightened the regulations governing Late Payment Charges (LPCs).

Charges must reflect actual recovery costs rather than acting as an additional source of income, and consumers must receive clear explanations and reminders.

For Islamic BNPL products, additional safeguards apply, including Shariah-compliant contract structures and rules for transactions involving ribawi items like gold and silver.

BNM has also prohibited merchants from setting BNPL as the default payment option. Financial institutions are expected to enforce this through their service agreements.

Implementation Timeline and Superseded Documents

Despite the new requirements, some core elements remain intact. The 10-year tenure cap for personal financing stays in place, and affordability assessments remain mandatory.

Capital treatment for secured exposures is unchanged, and BNPL’s integration into the personal financing framework continues the direction set in earlier guidance.

While many provisions are already in effect, those requiring more significant operational changes (which include tenure rules, interest calculation methods, and financial education) will only apply from January 2027.

The policy supersedes the Personal Financing document issued in December 2023 and the consumer safeguards letter from January 2025.

It should be ready alongside other BNM policy documents, including those on Responsible Financing, Product Transparency and Disclosure, and the Fair Treatment of Financial Consumers.

Featured image: Edited by Fintech News Malaysia based on an image via Wikipedia.