Frequently asked questions on hire purchase
Hire Purchase(HP) is the hiring of goods with the option to buy the goods at the end of the hire
purchase term. If you take on HP financing, you are the hirer and financier is the
owner. As a hirer, you will have to repay the financier based on the agreed
duration while you have possession of the vehicle. When all the instalments are
paid up, ownership is then transferred to you.
Buying a car under hire purchase is one of the most common ways to own a car.
Hire Purchase(HP) transactions are governed by the Hire Purchase Act 1967 (HP Act). The HP
Act sets out the forms and contents of HP agreements, the legal rights, duties,
obligations of hirers and financiers. The HP Act is administered by the Ministry of
Domestic Trade and Costs of Living (KPDN).
As a guide, your monthly repayment on your housing loan and motor vehicle
financing should not exceed 33% of your monthly household income. However,
you should also budget for other payments associated with owing a motor
vehicle, such as insurance, road tax and expenses for periodical maintenance.
You can apply for HP financing from a banking institution or credit company. You will receive a
financial statement called Second Schedule Part I, which states your financial
obligations under the proposed HP Agreement.
If you apply for HP financing through a motor vehicle dealer which will submit your application to a banking institution/credit company, you will receive another statement called the Second Schedule Part II. This statement states the consent of the banking institution/credit company to be a party to the agreement.
You need not pay for the cost of preparing and obtaining the Second Schedule, if you decide not to sign the HP agreement. The Second Schedule statement is also not binding on you yet. If you agree to take the HP financing, you will need to enter into a HP agreement with your banking institution/credit company.
If you apply for HP financing through a motor vehicle dealer which will submit your application to a banking institution/credit company, you will receive another statement called the Second Schedule Part II. This statement states the consent of the banking institution/credit company to be a party to the agreement.
You need not pay for the cost of preparing and obtaining the Second Schedule, if you decide not to sign the HP agreement. The Second Schedule statement is also not binding on you yet. If you agree to take the HP financing, you will need to enter into a HP agreement with your banking institution/credit company.
The margin of financing will depend on your credit standing subject to a
maximum of 90% of purchase price or any other lower margin of financing fixed
by the financier.
The minimum deposit is 10% of purchase price. However, a financier
may fix a higher amount.
The maximum term charges for a HP facility under fixed rate financing is 10% flat
per annum while term charges for variable rate financing will be quoted at a
margin above the base lending rate of the lending financier.
The need for a guarantor depends on the credit assessment of the financier. The guarantor should be one who is acceptable to the financier.
You can either insure with an insurance company on the panel of your financier or an insurance company of your choice.
This is subject to your financier’s discretion and you are advised to
discuss the matter with your financier.
If you settle your outstanding balance earlier, you are entitled to a rebate on the
term charges.