Hire Purchase is a facility that provides financing for vehicle purchase. Under the hire purchase facility, the bank or financial institution directly contacts the seller and buys it for the customer. The customer then makes the repayment for the financing offered by the bank in the form of monthly instalments. The ownership gets transferred in the name of the customer once the bank receives the entire financing amount in the form of repayment.
The hire purchase can be of two main types that are conventional hire purchase and Islamic hire purchase. There are hire purchase packages available for both cars as well as bikes and superbikes.
Basic Elements Of A Hire Purchase Loan
- Required Documentation: The hire purchase facility requires a customer to present a set of documents. These documents mainly include the ID proof, driving license and income proof certificates. Depending on the package, the hire purchase loan may also ask for different additional documents for different applicants.
- Hire Purchase Agreement: The hire purchase agreement consists of the written agreement between the bank and the individual. The agreement is based on the Hire Purchase Act 1949.
- Deposit Amount: Most of the banks provide customers with a margin of financing with a hire purchase facility. The margin is a percentage of the price of the vehicle. Most of the hire purchase loans can provide financing up to 90% to 100% of the vehicle’s price to customers. The rest of the amount needs to be deposited by the customer at the time of application.
- Margin of Financing: The hire purchase schemes provide customers with a margin of the financing for vehicle purchase. The margin is a part of the vehicle’s price. Most banks offer up to 90% to 100% of the price as vehicle financing.
- Financing Tenure: The hire purchase facility comes with a flexible range of financing tenures a customer can choose from. Most of the hire purchase facilities come with up to 9 years of repayment tenure.
- Interest Rate or Profit Rate: The funds obtainable with a hire purchase come at a range of interest rates or profit rates. These rates can be of fixed as well as floating type. The floating rates generally depend upon the base rate (for conventional banking) and base financing or lending rate (for Islamic banking) of a bank.
- Guarantor: The requirement of a guarantor to the hire purchase application process may vary from case to case. The applicants who do not meet with the required terms in conditions of the hire purchase package may be asked to bring a guarantor to the hire purchase loan application process.
- Insurance or Takaful Coverage: The hire purchase generally comes with a compulsory motor takaful coverage or motor insurance coverage. Customers are required to take the insurance or takaful coverage as per the Hire Purchase Act 1967.
- Repayment: Once the hire purchase loan is approved, customers need to make a payment for the financing amount borrowed on a monthly basis. This can be done via easy payment methods like interbank GIRO, standing instructions, or at the bank counters.
Mechanism Of A Hire Purchase Loan
The following is the mechanism of a hire purchase loan:
- Customer chooses the type of car and package.
- Customer contacts the bank with the request of a hire purchase loan application.
- Customer submits the required documents along with the duly filled application form of hire purchase.
- The bank or the financial institution checks the validity of the documents and checks the application against the eligibility criteria of the package.
- The agreement is signed by all parties and the seller releases the vehicle to the customer.
- The customer pays the financing amount back to the bank or the financial institution in form of monthly instalments.
- Once the repayment is done entirely, the ownership of the vehicle gets transferred to the customer.
Banks Offering Hire Purchase Loan In Malaysia
The following is the list of banks and financial institutions that offer hire purchase loan in Malaysia:
- Affin Bank
- Al-Rajhi Bank
- Bank Islam
- Bank Muamalat
- Bank Rakyat
- Bank Simpanan Nasional (BSN)
- Hong Leong Bank
- Kuwait Finance House (KFH)
- Public Bank
Hire Purchase Interest/Profit Rates In Malaysia
The interest rates associated with car hire purchase loans are mentioned in the following table:
|Name of the Bank/Financial Institution||Interest/Profit Rate Range|
|Bank Muamalat||As per the bank’s discretion.|
|Kuwait Finance House||As per the bank’s discretion.|
|Al-Rajhi Bank||As per the bank’s discretion.|
|AmBank||As per the bank’s discretion.|
|Affin Bank||Base Rate (conventional): 3.85% p.a. flat.|
|Base Financing Rate (Islamic): 6.71% p.a.|
|Bank Islam||2.90-3.60% p.a.|
|Bank Rakyat||2.50-15.00% p.a.|
|Bank Simpanan Nasional (BSN)||Interest rate (conventional hire purchase): 2.53-3.15% p.a.|
|Islamic financing profit rate: 2.53% p.a. to 3.15% p.a.|
|CIMB Bank||Conventional loan fixed interest rate: 2.75% p.a. to 7.95% p.a. flat|
|Islamic financing fixed profit rate: 2.75% p.a. to 7.95% p.a. flat.|
|Hong Leong Bank||Interest rate (conventional hire purchase): Up to 10% p.a. flat and up to 17% p.a. floating interest rate.|
|Islamic financing fixed profit rate: 3.78% p.a. flat.|
|Maybank||For both conventional as well as Islamic hire purchase loan: 3.40% p.a. to 4.50% p.a.|
|Public Bank||Base Rate (conventional): 3.52% p.a. flat.|
|Base Financing Rate (Islamic): 6.72% p.a.|
|RHB||Conventional financing interest rate: As per the bank’s discretion.|
|Islamic financing profit rate: Up to 12% p.a.|