Hire Purchase (Car Loan)

Hire purchase (HP) financing is one of the most common ways for people to buy private vehicles. If you take on HP financing, you become the hirer while the financier financing the vehicle is the owner.

As the hirer, you will have to pay instalments to the financier based on an agreed duration while you will have possession of the vehicle. When all instalments are paid up, ownership is then transferred to you, the hirer.

In Malaysia, The legislation governing hire purchase transactions is the Hire Purchase Act 1967, which came into force on 11 April 1968 after hire purchase became popular in the acquisition of expensive consumer goods such as cars, business equipment and industrial machinery.

Purchasing cars is the most common type of hire purchase agreement in Malaysia and the repayment could served up to 9 years from the date of agreement been executed.

There are two types of car loans currently offered in Malaysia: variable rate and fixed rate car loans. Fixed rate car loans are the most common type in the market, where there is no fluctuations in interest during the loan tenure. The variable rate car loan is linked to a current account, whereby the funds deposited in your current account will reduce your payment on interest.

You can apply for HP financing from a banking institution or through the dealer where you intend to buy your vehicle from.

A HP Agreement must contain the following important information:

• Description of motor vehicle

• Calculation of total sum payable

• Minimum deposit

• Term charges and annual percentage rate

• Late payment charges

• Date on which hiring commences

• Number of instalment repayments

• Amount of each instalment repayment

• Person to whom repayments are to be made, time and place of repayments

• Address where the motor vehicle is to be kept

Things to Remember About your HP Agreement:

Minimum deposit

The minimum deposit that you can make is 10% of the cash value of the motor vehicle. However, the banking institution can request for a higher deposit.

Term charges (interest rate)

You may choose your financing to be based on either fixed or variable rates.The maximum rate allowed under fixed rate financing is 10%. For variable rate financing, term charges will be quoted at a margin above the base lending rate of the banking institution concerned.

Late payment charges

A penalty is imposed on overdue instalments with its interest charged on a daily basis. For fixed rate financing, the maximum charge allowed is 8% while for variable rate financing, it is 2% above the prevailing term charges for variable rate.

Guarantor

Based on the credit assessment made on you, the banking institution may require a guarantor as additional security to support your application. In the event that the hirer defaults on payments, the guarantor is responsible for the unpaid portion of the HP facility including interest.

Insurance

It is your responsibility as the hirer to purchase insurance cover for your motor vehicle other than for the first year. The banking institution normally requires a comprehensive insurance policy / takaful plan to be taken on the motor vehicle. You may check the market value of your vehicle to determine the sum insured for the motor insurance / takaful.

Repossession

This occurs when the hirer defaults in repayments and the owner takes possession of the motor vehicle. Generally, the banking institution that facilitates your HP agreement will engage a registered repossessor to repossess any motor vehicle.

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