Your Personal Banking Referrence



Introduction

Buying a car under hire purchase is one of the most common ways to own a car. Before entering a hire purchase agreement for a car for private use, it will be useful this article to get a better idea of what is involved. Understanding the steps in financing via hire purchase will help you save time and avoid uncertainty and axiety.

This article will guide you through the basics, explain the technical terms and give you invaluable tips on hire purchase financing.

What is Hire Purchase

Hire purchase is the hiring of goods with option to purchase. You are the hirer and the company financing the goods(financier) is the owner. Ownership is transferred to the hirer after all the installment have been paid. Meanwhile, you have possession and use of the goods.

Various goods can be financed via HP, including the following : -

• all consumer goods which are purchased for personal, family or household purposes.
• motor vehicles including invalid carriages,motorcycles,motor cars(including taxis and hire cars),goods vehicles and buses.

Governing Legislation - Hire Purchase Act 1967

All HP transaction are governed by the Hire Purchase act 1967. The forms and contents of HP agreements ,the legal rights,duties,obligation of hirers and financiers are set out in the HP act. The HP act is under the preview of the Ministry of Domestic Trade and Consumer Affair.

Before you commit yourself to the purchase of a motor vehicle through HP, work out a budget to help you determine how much you can afford to pay in monthly installment. As a guide, your monthly commitment to pay instalments on your house and motor vehicle should not exceed 33% of your monthly household income. You should also budget for additional payments for insurance and road tax. It is also important to check out your duties and obligation including penalties before signing a HP agreement.

A HP agreement can be made directly with the finance company or through a motor vehicle dealer who can submit your application for a HP facility to a finance company. If you deal directly with a finance company you’ll be given a written financial statement known as Schedule Part I. The statement will inform you of your financial obligation under the proposed HP agreement.

If you go through a motor vehicle dealer, you will receive a Second Schedule Part I and an additional statement known as Second Schedule Part II which states the consent of the finance company to be a party to the agreement. This part is to be signed by the dealer and finance company after you have received Part I of the Second Schedule.

You cannot be compelled to enter into any HP agreement or be made to pay for the cost of preparing and obtaining the Second Schedule, if you decide not to sign the HP agreement. The second schedule statement(part I and II) is not binding on you if you have not entered into the HP agreement. If you agree to hire purchase the motor vehicle upon receipt of the Second Schedule Statement(part I and II), there must be a HP agreement made between you and the finance company.

The HP Agreement

A HP agreement must contain the following information :

• description of motor vehicle
• computation of the total sum payable
• minimum deposit
• terms charges and annual percentage rate for term charges
• late payment charges
• date on hiring commences
• number of installment repayments
• amount of each installment repayment
• person to whom repayments are to be made, time and place of repayments
• address where the motor vehicle to be kept

You should ensure the particulars in the agreement do not differ from the second schedule statement. The agreement will be stamped at a nominal rate,which will be borne by you. You do not need a lawyer to enter into a HP agreement. The Minimum deposit is 10% of the cash price of the motor vehicle. The finance company can request for a higher deposit.

The Maximum term charges that a finance company can charge is 10% flat per annum. This a fixed percentage charge over the entire HP tenure. If you are charge 10% flat over the period of 5 years for a hire-purchase financing of RM 50,000 the annual percentage rate(APR) that you pay is 17.3%.

The maximum late payment charges that a finance company can charges is *% per annum calculated on a daily basis on overdue installments.

Guarantor

The finance company will conduct a credit assessment on the applicant of the HP facility. Based on the result of the credit assessment, the finance company may require a guarantor for the HP facility as additional security for the HP facility. The guarantor will be required to sign a letter of guarantee. The guarantor will receive a copy of the HP agreement and is liable for the HP facility. In the event the hirer defaults on payments, the guarantor is responsible for the unpaid portion of the HP facility and the interest due.

Term charges, or interest is calculated as follows :

for example, if you taken a financing of RM 50,000 at 10% per annum for five years.

Interest would be (Amount Financed) x (Rate) x (Years)
= 50,000 x 10% x 5
= 25,000

Calculating the monthly installment should look exactly like this

= Amount Financed + Total Interest on Amount Financed
Repayment Period

= RM50,000 + 25,000
60

= RM1,250

Insurance

The finance company has the duty to insure the motor vehicle in your name for the first year only. In subsequent years it is your responsibility as the hirer to renew the insurance policy. If you fail to renew of effect a new policy the finance company can insure the motor vehicle and charge any costs incurred to you. You will be given a copy of the insurance receipt. In practise the finance normally requires a comprehensive insurance policy to be taken on the motor vehicle.

Serving The HP Agreement

You and your guarantor should be given a copy of the HP agreement within 14 days after making the agreement.

Early Settlement

You can repay in advance the balance due under the HP agreement. If you do so, you will be entitled to a rebate on the interest for early settlement. Using the example shown, if your tenure is 5 years(60 months) and you have already paid for 4 years and would like to settle the loan, you will be entitled to an interest rebate for the remaining period of 12 months.

Your Rights As a Hirer

You have the following rights:

• to receive a copy of the HP agreement
• to obtain any information regarding the account
• to request a statement of outstanding balance
• to settle early the full outstanding amount
• to terminate the agreement at any time

Your Obligation As A Hirer

• You have the following obligation :
• not to remove,sell or dispose off the motor vehicle without the consent of the finance company
• to pay installment on time
• to inform the finance company of any change of address
• to continue to insure the motor vehicle after first year and to inform the finance company upon renewal within 14 days before the current policy expires

Rights of The Finance Company

• The finance company has the following rights :
• 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

• to receive a copy of the HP agreement
• to receive all notices on payment issued by the finance company to the borrower
• to be discharged from your liability once the amount due to the finance company is fully paid.
• to take legal action against the hirer for breach of obligation
• to be indemnified by the hirer against claims by the finance company after you have paid the amount due to the finance company.

As a hirer you have to ensure that monthly installments are paid promptly. A finance company can repossess the motor vehicle hired to you when

• you default in two successive installment or the final installment
• In the case where the hirer is deceased, defaults in for successive monthly installments

Who Can Repossess

Normally the finance company will engage a repossessor who is registered with association of hire purchase companies malaysia to repossess any motor vehicle. Before repossessing the motor vehicle, a repossessor must show his identity card, authority card and repossession order issued by the finance company authorising the repossessor to take possession of the motor vehicle. You should request to see his IC and authority card before allowing a repossessor to take your motor vehicle.

Conduct of Repossessor

A repossessor must act in a professional manner when carrying out his duties in repossessing the motor vehicle from you. The association of finance companies of Malaysia has issued the “Guidelines on the Appointment and Conduct of Repossessors” to guide repossessors an to protect the hirer’s interest. Some of the rules set out are listed below :

• The repossessor should show to the hirer the repossession order and his authority card given by the finance company before he repossesses the vehicle.
• the number of repossessors present should be kept to a minimum, unless necessary
• the repossessor can only enter the premises with the permission of the resident or hirer
• the repossessor shall at all times appear and act in a a professional manner
• the use of strong arm tactics and force is strictly prohibited
• the hirer shall be given enough time to clear his personal belongings from the motor vehicle to be repossessed
• after repossession of the motor vehicle, the repossessor must immediately make a police report and bring the repossessed motor vehicle to the place indicated by the finance company concerned.

if the repossessor had acted otherwise than set out above you may lodge your complaint with finance company. Alternatively, you may also lodge your complaint with the Association of Hire Purchase Companies Malaysia.

Before Repossession

Your finance company would have served on you the following notices :

• a fourth Schedule notice. This is a 21 days notice in writing of the finance company’s intention to repossess the motor vehicle
• a second notice, 14 days after the fourth schedule notice, to inform you that the finance company intends to repossession of the motor vehicle upon expiry of the fourth schedule notice.

what can you do?

• you can pay the outstanding arrears as stated in fourth schedule notice before the expiry of the 21 days stated in fourth schedule notice. if you do so, your motor vehicle will not be repossessed.
• you can return the motor vehicle to the finance company before the expiry of the 21 days fourth schedule notice. you will need to settle any outstanding debts less the value of the motor vehicle

After Repossession

Upon repossession of the motor vehicle, the finance company must give you a document in writing acknowledging receipt of the motor vehicle. if you are not available , the receipt will be delivered to you as soon as possible. Within 21 days after repossession the finance company should give you and every guarantor a fifth schedule notice, which allows you to pay the owing amount to the finance company.