Bahasa Malaysia

 

 

HIRE PURCHASE

 

INTRODUCTION
Buying a car under hire purchase is one of the most common ways to own a car.
This pages provides the basics, explains the common terms used in hire
purchase agreement and gives some tips on hire purchase financing.


WHAT IS HIRE PURCHASE (HP)?
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.


GOVERNING LEGISLATION - THE HIRE PURCHASE ACT 1967
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 Consumer Affairs.


HOW MUCH CAN I AFFORD?
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.


WHERE TO GET FINANCING?
You can apply for HP financing from a banking institution. 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), you will receive another statement
called the Second Schedule Part II. This statement states the consent of the
banking institution 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.


THE HP AGREEMENT
You should receive the HP agreement within 14 days after you have signed it.
The HP agreement must have the following information:
· Description of motor vehicle;
· Computation of the total sum payable;
· Minimum deposit;
· Term charges and annual percentage rate for term charges;
· 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; and
· Address where the motor vehicle is to be kept.


You do not need to engage a lawyer when entering into a HP agreement.
However, do ensure that the particulars in the agreement are similar to the
Second Schedule statement received earlier.


MINIMUM DEPOSIT
The minimum deposit is 10% of the cash price of the motor vehicle. However,
your banking institution may ask for a higher deposit at its discretion.

TERM CHARGES AND LATE PAYMENT CHARGES
The HP Act sets the maximum term charges and late payment charges allowed.


Fixed rate financing Variable rate financing

Term charges

(max)

Not more than 10% flat per
annum. Term charges are
calculated on initial amount
financed over the entire HP
tenure.

Not more than 17% per annum.
Term charges are calculated at
a margin percentage above the
base lending rate (BLR) of the
banking institution.

Late payment
charges (max.)


Not more than 8% per annum
calculated on a daily basis on
overdue instalments.


A rate of 2% above the
prevailing rate of term charges
imposed.


GUARANTOR
The need to have a guarantor for HP financing would depend on the banking
institution's credit assessment of your ability to repay the instalments. If you
default on your repayment, the guarantor is liable for the unpaid portion of the HP
financing and the interest due. A person who agrees to be a guarantor will need
to sign a letter of guarantee. He will also be given a copy of the HP agreement
within 14 days after the agreement is signed.


INSURANCE
Your banking institution will arrange for an insurance cover for the motor vehicle
for first year. For subsequent years, you will need to get the insurance yourself.
In practice, most banking institutions would need a comprehensive insurance
policy on the motor vehicle.


FIXED RATE FINANCING
Calculation of term charge and HP instalments
Term charges on a fixed rate HP financing is calculated on the initial amount
financed.

See example:

____________________________________________________________________________________

Amount Financed Rm50,000.00

Term Charges (Interest Rate) 10% per annum

Tenute (Repayment Period) 5 Years (60 Months)

 

Interest Charged (Amount) x (Rate) x (Years)

= RM50,000 x 10% x 5

= RM25,000

Anual percentage Rate = 17.3%

 

 

The monthly instalments is calculated as follows:


Monthly Instalment

 

...............= Amount Financed + Total interest on Amount Financed

..................................Repayment Period (months)

 

...............= RM50,000 + RM25,000

................................60


...............= RM75,000

......................60

 


...............= RM1,250

 

 

Since term charges are calculated on the initial amount financed, you will get a
rebate on the term charges if you repay in full the balance due under the HP
agreement.


Using the earlier example, where your HP tenure is 5 years (60 months) and you
would like to pay off your loan after paying 48 monthly instalments, you will get a
rebate on the term charges for the remaining 12 months (i.e. 60 months - 48
months = 12 months). The calculation of rebate is as follows:


Total term charges on the amount financed is RM25,000.

Culculation Of Rebate on interest:

Rebate on interest

....................RM25,000 x (1 + 2 + 3 +....n)

............................(1 + 2 + 3 +...k)


....................Where :

................................n : remaining Repayment period (in months)

..................................................,,,,,,,,e.i . 12 months

 

...............................k : Original repayment Period (in month)

..........................................................e.i . 60 months


Rebate on interest :

.....................= RM25,000 x (1+2+3+....+12)

...............................(1+2+3+.....+60)


.................... = RM25,000 x 78

.............................1,830


.....................= RM1,066


VARIABLE RATE FINANCING
Term charges on variable rate financing are calculated on the outstanding
balance at the end of the month.


FIXED OR VARIABLE RATE HP FINANCING?
In variable rate financing, your interest repayments will vary according to the
movements of the BLR. If BLR increases, your term charges will increase,
resulting in a higher monthly instalment. However, if BLR reduces, your
repayments will be lower due to lower term charges. You will have to decide
which mode is more beneficial to you based on your expectation of how the
interest rate will move in the future.


REPOSSESSION
Your banking institution can repossess the motor vehicle hired to you when:


· You default in two successive monthly instalments or the final instalment;
or
· In the case where the hirer is deceased, defaults in four successive
monthly instalments.



STEPS TO REPOSSESSION


Step 1: Pre-repossession notice
A pre-repossession notice (Fourth Schedule) will be served on you (personally
delivered or send by registered mail to your last known address) and your
guarantor. This is a 21 days notice in writing from your banking institution to
inform you that it intends to repossess the vehicle. This will be followed by a
second notice, 14 days after the Fourth Schedule notice.


What can you do?


You have two choices, both of which must be acted upon before the expiry of the
21 days stated in Fourth Schedule notice to avoid repossesion:
· Pay the outstanding arrears as stated in the Fourth Schedule notice; or
· Return the motor vehicle to your banking institution and pay any
outstanding debt.


Step 2: Repossession of your vehicle
Upon the expiry of 21 days stated in the Fourth Schedule notice, repossession is
allowed if you fail to pay the outstanding arrears.


Step 3: Post-repossession notice
Upon respossession of the motor vehicle, your banking institution will send a
notice in writing informing you that it has taken possession of the vehicle. This
will be followed by a Fifth Schedule notice to you and your guarantor within 21
days after the repossession has taken place.


What can you do?


You have three options, all of which must be acted upon before the expiry of the
21 days as stated in the Fifth Schedule notice.

· Pay all outstanding arrears and out of pocket expenses (includes cost of
storage, repair or maintenance, cost of repossession and re-delivery)
incurred by the banking institution to take back possession of the motor
vehicle; or


· Repay in full, the balance due and settle all out of pocket expenses
(includes cost of repossession, storage, repair or maintenance); or
· Introduce a buyer to purchase the motor vehicle at the price indicated on
the notice.


Step 4: Notice on disposal of motor vehicle
If the amount due under the Fifth Schedule notice is not paid within 21 days after
the Fifth Schedule notice, your banking institution can sell the motor vehicle
through a public auction by giving you a notice 14 days before the date of the
auction or conduct a private sale to sell the motor vehicle.


Step 5: Selling the motor vehicle
Sale of the motor vehicle can take place after the 14 days given in the notice in
Step 4. As auction prices are based on forced sale value, it will be lower than the
prevailing market value. The auction price may also reduce at each subsequent
auction carried out. If proceeds from the sale of the motor vehicle are
inadequate to pay the outstanding amount due, your banking institution will
recover the shortfall from you. You will also need to bear the auction expenses.


REPOSSESSION PROCEDURES IN SUMMARY

WHO CAN REPOSSESS?
Repossession of motor vehicles are generally carried out by repossessors who
are registered members of the Association of Hire Purchase Companies
Malaysia (AHPCM). All repossessors must comply with the rules set by
AHPCM when carrying out their duties. Among others, the rules required a
repossessor to:


· Show hirer the Repossession Order and his authority card issued by the
banking institution before he repossesses the motor vehicle;


· Obtain permission of the resident/hirer before he enters into the premises
to repossess the motor vehicle;


· At all times appear and act in a professional manner;


· Not use strong arm tactics and force when carrying out his duties;


· Give hirer enough time to clear his personal belongings from the motor
vehicle to be repossessed;


· Immediately make a police report after he has repossessed the motor
vehicle and bring it to the place indicated by the banking institution.


ADVICE TO HIRERS
Your rights
· To receive a copy of the HP agreement.
· To obtain any information regarding the account.
· To request a statement of outstanding balance (once every 3 months).
· To settle early the full outstanding amount.
· To terminate the agreement at any time.


YOUR RESPONSIBILITES


· Read all the fine print in the written agreement.


· Check that the purchase price and HP terms in the agreement are as
agreed. Do not sign blank or incomplete agreement/ forms.

· Ensure that you can afford the instalment payments for the duration of the
HP financing and pay your instalments on time.


· Know your rights and obligations under the HP contract so that you do not
commit any actions leading to a breach.


· Keep all documents pertaining to the HP financing such as agreement,
receipts, etc. in a safe place.


· Not to remove, sell or dispose off the motor vehicle without the consent of
your banking institution.


· Inform your banking institution of any change of address.


· Insure the motor vehicle after the first year and to update your banking
institution within 14 days before the current policy expires.


RIGHTS OF YOUR BANKING INSTITTUTION
The rights of your banking institution include:
· To repossess the motor vehicle when you default in payment.
· To ask you to insure the motor vehicle.
· To charge you any fees relating to the enforcement of the HP agreement.


RIGHTS OF A GUARANTOR
A guarantor under a HP agreement would have the following rights:
· To receive a copy of the HP agreement.
· To be discharged from liability once the amount due 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 he has paid the amount due.



FREQUENTLY ASKED QUESTIONS


How much can I borrow from the banking institution?
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 banking institution.


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


What are the term charges for a HP facility?
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 banking institution.


Do I require a guarantor for my HP facility?
The need for a guarantor depends on the credit assessment of 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 my banking institution insist that I insure with an insurance company
on its panel?

You can either insure with an insurance company on the panel of your banking
institution or an insurance company of your choice. Normally, a banking
institution has at least four insurance companies on its panel for the convenience
of its hirers.


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

Generally, banking institutions will keep the registration card until the HP
financing has been fully settled in order to prevent any inconveniences that may
arise due to damage, misplacement or theft of card. As such for the convenience
of their hirers, most banking institutions will provide insurance and road tax
renewal services to their hirers.

Can I modify the monthly repayment amount if I have financial difficulties?
This is subject to your banking institution's discretion and you are advised to
discuss the matter with your banking institution.


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

If you settle your outstanding balance earlier, you are entitled to a rebate on the
term charges.


When can my banking institution repossess my motor vehicle?
Under a HP agreement, a banking institution can repossess a motor vehicle after
the hirer had defaulted two successive instalments or the final instalment.


What is the time limit for banking institutions to repossess the motor
vehicles after serving the Fourth Schedule notice?

Banking institutions can repossess the motor vehicles anytime after 21 days from
the date the Fourth Schedule notices were served if the overdue instalments are
not paid.


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 your banking institution, nature of
appointment of the repossessor and the signature of an authorised
representative of your banking institution.


How do I get my motor vehicle back after it was repossessed by my
banking institution?

After the repossession, your 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 the address below:
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 instalments, can my banking institution
claim from the guarantor?

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


What are the rights and responsibilities of a guarantor under the HP Act?
A guarantor has the following rights under a HP agreement:
· To receive a copy of the HP agreement.
· To receive all notices on payment issued by the banking institution to the
hirer.
· To be discharged from 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 paying the amount due.


Can my banking institution claim any amount from me after the
repossessed motor vehicle is sold?

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

Do I still have to pay my monthly instalments if my motor vehicle is stolen?
Yes. This is because your liability to pay the monthly instalment 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 instalments.


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 your 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 debt
before you sell your motor vehicle. If you wish to use the proceeds of the sale of
your motor vehicle to pay the outstanding balance of your HP financing, get the
consent of your banking institution to sell the motor vehicle and arrange for the
proceeds of the sale to be paid directly to the banking institution to settle your
outstanding balance. If there is any shortfall, you will be responsible for repaying
the balance. If there is a surplus, it will be refunded to you by the banking
institution.

 

Source :Banking Info