Hire Purchase Financing In Malaysia
What is hire purchase?
You found a car that sweeps you off your feet in style but the price to pay holds you back. Traditionally, hire purchase financing would be the type of financial facility that you would be looking for in such situations. It helps to finance your dream car through instalments when you are not able to pay the full amount in a lump sum.
A hire purchase arrangement is often commonly referred to as a “car loan”. When you take up a hire purchase financing, you are the “hirer”, and the party lending you the money (typically a bank) is the “owner”. In Malaysia, hire purchase transactions are governed by the Hire Purchase Act 1967. The relevancy of this act would be to establish the legal rights and duties of the owner and hirer.
How does hire purchase work?
Once you have selected your dream car, you typically pay a minimum deposit (e.g. 10% of the car value) to the car dealer. The bank you have the hire purchase arrangement with would pay for the rest of the car (i.e. the other 90%).
At this point, the bank technically “owns” your dream car. You then enter into a hire purchase agreement to “hire” (or think of it as “rent”) the car from the bank for a specified duration. In return, you promise to make a certain monthly instalment (plus interest) to the bank.
Once all the required payment is done, the ownership of the car will be rightfully transferred to you.
Basically, in a hire purchase arrangement, you will not own the car you bought until you have completed all necessary payment under the agreement. You can apply for a hire purchase financing from a bank or through a car dealer. The simple chart below explains the transaction that takes place in a hire purchase financing involving you, a car dealer and the financier (bank).
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