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Understanding Hire Purchase Things to remember about your agreement FAQ

What is Hire Purchase (HP)?

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.

Where can you get financing?

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

Where can you get financing?

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

What's in a HP agreement?

  • 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

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 from www.carprices.com.my.

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.

Checklist

To ease your banking procedures, use the following checklist to identify the relevant documents needed for banking procedures and applications. The exact documents required may differ among banking institutions. Do check with your banking institution to confirm what documents are needed before applying.
Photocopy of your identity card / passport
Photocopy of your driving licence
Photocopy of your most recent income tax return (J Form)
Photocopies of your most recent salary slips/statements
Photocopies of your most recent bank statements (If self-employed)

How much can I borrow from the banking institution (BI)?

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 BI.

What is the minimum deposit required?

The minimum deposit is 10% of purchase price. However, the banking institution may fix a higher amount.

How can I transfer/sell/part possession of the motor vehicle to a third party even though the motor vehicle is still financed under my name?

It is illegal to transfer/sell/part possession of the motor vehicle without the permission of the banking institution, who is the legal owner. If you do so, you may incur substantial losses and penalties as you are still fully responsible for the liability and losses incurred. Ensure that you have fully settled your HP facility before you sell your motor vehicle.

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