Car Loan

Understanding Hire Purchase

• 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.

• 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

Things to remember about your 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 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.

Things to remember about your agreement

• 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.

  1. Photocopy of your identity card / passport
  2. Photocopy of your driving licence
  3. Photocopy of your most recent income tax return (J Form)
  4. Photocopies of your most recent salary slips/statements
  5. Photocopies of your most recent bank statements (If self-employed)

FAQ

• 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.

• What is the interest rate for a HP facility?

  Interest for HP facility is a fixed rate up to a maximum of 10% flat per annum for a fixed rate hire purchase facility. The interest rate for a variable rate hire purchase facility is quoted at a margin above the banking institution's base lending rate.

• Do I require a guarantor for my HP facility?

  The requirement for a guarantor depends on the credit assessment by the banking institution. The guarantor should be one who is acceptable to the banking institution.

• What should I do if the guarantor or I did not get a copy of the HP agreement 14 days after entering into the agreement?

  You should contact your banking institution to get a copy of the agreement.

• Can the banking institution insist that I insure with an insurance company on their panel?

  You can either insure with an insurance company on the banking institution's panel or an insurance company of your choice. Normally, banking institution have at least four insurance companies on their panel for the convenience of hirers.

• Can I keep the motor vehicle registration card to enable me to renew my road tax upon expiry?

  Generally, the banking institution will keep the registration card until the HP facility has been fully settled in order to prevent any inconveniences that may arise due to damage, misplacement or theft of card. The banking institution also provides insurance and road tax renewal services.

• Can I modify the monthly repayment amount if I have financial difficulties?

  This is subject to your banking institution's discretion. You need to discuss this with your banking institution.

• What happens if I settle my HP financing earlier than the date originally agreed upon?

  If you settle your outstanding balance earlier, you are entitled to a rebate on interest.

• When can the banking institution repossess my motor vehicle?

  Under a HP agreement, the banking institution can repossess your motor vehicle after you have defaulted two successive installments or the final installment.

• What is the time limit for the banking institution to repossess the motor vehicle after serving the Fourth Schedule notice?

  The banking institution can repossess the motor vehicle anytime after 21 days from the date the Fourth Schedule notice was served if the overdue installments are not paid. (The notice may be served by personal delivery or by registered mail to the last known address).

• How do I determine the identity of the repossessor?

  The repossessor will have to show you an authority card, which has the name and address of the repossessor and banking institution, nature of appointment of the repossessor and the signature of an authorised representative of the banking institution.

• How do I get my motor vehicle back after being repossessed by the banking institution?

  After the repossession, the banking institution will issue you a Fifth Schedule notice. This notice gives you a chance to settle the amount outstanding within 21 days. You can get the motor vehicle back provided that, before the expiry of 21 days, you: pay all outstanding arrears with interest due and the costs incurred by the banking institution (costs of storage, repair or maintenance, repossession and re-delivery); or settle the balance in full including the costs of repossession, storage, repair or maintenance

• When can the banking institution sell the repossessed motor vehicle?

  The banking institution can sell the repossessed motor vehicle when the hirer does not make any payment after the 21 days stated in the Fifth Schedule notice.

• Can I introduce a prospective buyer to buy the repossessed motor vehicle?

  Yes. Before the expiration of the Fifth Schedule notice, you can introduce a buyer to buy the repossessed motor vehicle at the price indicated in the Fifth Schedule notice.

• Whom and where can I complain if I am not satisfied with the manner in which my motor vehicle was repossessed?

  You may lodge your complaint with the banking institution. Alternatively, you may also lodge your complaint with the Association of Hire Purchase Companies Malaysia at this address: Unit 605 Block C, Phileo Damansara 1, No. 9 Jalan 16/11, Off Jalan Damansara, 46350 Petaling Jaya, Selangor

• If I have defaulted on the monthly installments, can the banking institution claim from the guarantor?

  Yes. The banking institution can claim the payment from the guarantor because the guarantor has agreed to undertake the liability to repay your debt to the banking institution in the event of default by you.

• What are the rights and responsibilities of a guarantor under the HP Act?

  As a guarantor under a HP agreement, your rights include the following: To receive a copy of the HP agreement. To receive all notices on payment issued by the BI to the borrower. To be discharged from your liability once the amount due to the banking institution is fully paid. To take legal action against the hirer for breach of obligation. To be indemnified by the hirer against claims by the banking institution after you have paid the amount due to the banking institution. As a guarantor, you are liable to the banking institution in the event the hirer defaults in payments of instalments or breaches the terms of the HP agreement.

• Can the banking institution claim any amount from me after the repossessed motor vehicle has been sold?

  Yes. If the proceeds from the sale of the repossessed motor vehicle are not enough to cover your liability, the banking institution can claim the amount outstanding from you.

• Do I still have to pay my monthly installments if my motor vehicle is stolen?

  Yes. This is because your liability to pay the monthly installment does not cease with the loss of your motor vehicle. However, you may claim from the insurance company, the market value of the insured motor vehicle or the sum insured, whichever is lower.

• What happens to the HP agreement in the event of the death of the hirer?

  If the personal representative has obtained a Letter of Administration or Grant of Probate, the rights, title and interest will be transferred to the personal representative who will take over the responsibilities of the hirer. Otherwise, the banking institution will repossess the motor vehicle after defaults in four successive monthly installments.

• 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.