A Guide To Hire Purchase

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Ministry of Domestic
Trade and Consumer Affairs
Malaysia

 

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With the co-operation of
Association of
Hire Purchase Companies
Malaysia

 

What Is Hire Purchase?

  1. Hire purchase is the hiring of goods with an option to purchase. Payment is done by instalment.                          comic1.jpg (12830 bytes)              
  2. You are the hirer and the company financing the goods is the owner.                                                                          comic2.jpg (12777 bytes)
  3. Ownership will be transferred to the hirer after all the instalment have been paid..

Goods Under Hire Purchase

The goods listed below are governed by the Hire Purchase Act, 1967 :-

  1. All consumer goods, i.e goods purchased for personal, family or household purposes;
  2. Motor vehicle, namely :-
    a ) Invalid Carriages
    b ) Motor cycles
    c ) Motor Cars including taxi cabs and hire cars.
    d ) Goods Vehicles ( where the maximum permissible laden weight does not exceed 2540kg )
    e ) Buses, including stage buses.

Form And Contents Of Hire Purchase Agreement

  1. There shall be a separate hire purchase agreement for every item of goods purchase. The agreement shall be in writing.
  2. Goods which are essentially similar or complementary to each other and sold as a set shall be regarded as an item.
  3. Hire purchase agreement contains the following:-
    a ) Description of goods
    b ) Effective date of agreement
    c ) The address where the goods under hire purchase are kept.
    d ) Cash price of goods
    e ) Deposit ( not less than 10% of the cash price )
    f ) Freight charges ( if any )
    g ) Vehicle registration fees ( if any )
    h ) Insurance premium
    I ) Terms charges
    j ) The annual percentage rate for terms charges.
    k ) Balance originally payable
    l ) Total amount payable
    m )The number of instalment and the amount of each instalment
    n ) The time, place and the person to whom the instalment is to be paid
    o ) Name and address of hirer and owner
    p ) Signatures of hirer and owner

Insurance

  1. For motor vehicles on hire purchase the owner shall insure in the name of the hirer for the first year only, against any risk that he thinks fit. The hirer shall insure the said vehicle for the second and all subsequent years, that the vehicle remains under hire purchase.
  2. For all other goods on hire purchase, the owner shall insure the goods in the name of the hirer for the duration that they are under hire purchase against any risks that he thinks fit.
  3. The owner shall not insist on a particular insurance company.
  4. Where the insurer allows any commission or rebate including a no - claim rebate or any other rebate of a similar nature to the owner who is also an insurance agent and who arranges the insurance on behalf of the hirer, the hirer is entitled to that commission or rebate. Any person who knowingly pays or allows any such commission or rebate to an owner and any owner who receives such commission or rebate shall be guilty of an offence under this Act.

Hire Purchase Repayments

When you buy on hire purchase you are actually paying the cash price of the goods and interest charged on the amount financed.

For example, you buy a television set costing $1,500 with a downpayment of $300. You obtain a loan of $1,200 with a repayment period of 12 months (1 year). The interest rate is at 10% per annum. The monthly instalment you will have to pay is calculated as follows:

Computation of Monthly Instalments

Cash price $1,500
Less deposit $   300
Amount financed $1,200

Total interest for repayment period of 1 year at the rate of

10% per annum = $1,200 x 10 x 1 = $120

100

100 Balance originally = Total amount financed + Total interest payable

= $1,200  + $120
= $1,320
Monthly instalment = Balance originally payable
       Repayment period
= $1,320
      12
= $110

Early Settlement

If you wish to settle the balance outstanding after paying 6 instalments, without default you are entitled to a rebate and the computation of settlement amount would be as follows :-

Computation of Early Settlement

Amount payable on settlement = Balance outstanding - Rebate
Balance outstanding = Monthly instalment x
   Repayment period remaining
= $ 110 x 6 = $ 660
Rebate = Total interest on amount financed x
   ( 1 + 2 ..... + n )
   ( 1 + 2 + 3 + 4....+ k )
where n is 6 and k is 12
$120 x ( 1 + 2 + 3 + 4 + 5 + 6 )
( 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10 + 11+ 12 )
= $120 x 21
        78
= $2,520      = $32.30
       78

Amount payable on settlement
= $660 - $32.30 = $627.70

n : repayment period remaining ( in months )
k : original repayment period ( in months )   

Note : The above example does not include insurance and rebate on insurance.

The Rights Of Hirer

The hirer has the right :-

  1. To receive a Second Schedule Notice before entering into any hire purchase agreement.
  2. To receive a copy of agreement within 14 days after the signing of the agreement.
  3. To receive a rebate upon early settlement.                                                                                                          comic3.jpg (14130 bytes)
  4. No hirer shall be made to sign any agreement or document which had not been duly completed. An owner, dealer, agent or person acting on behalf of the owner who causes a hirer to sign any agreement or document which has not been duly completed shall be guilty of an offence.                                                                                                            comic4.jpg (11880 bytes)
  5. To obtain a statement of the balance outstanding upon making a request in writing to the owner, provided that the request is made after 3 months from the first request.
  6. To terminate the agreement by returning to the owner the goods. By doing so, where the value of the goods at the time when it is returned to the owner is more than the balance outstanding under the hire purchase agreement, the hirer is entitled to the difference and vice - versa.
  7. To assign the rights and liabilities under the agreement with the consent of the owner.

The Duties Of Hirer

  1. To pay instalments in accordance with the said agreement.
  2. Not to remove, sell or dispose off the goods without the consent of the owner.
  3. To inform the owner of any changes of address within 14 days.
  4. Keep all receipts and relevant correspondent relating to the hire purchase agreement,  and the guarantee card.            comic5.jpg (9137 bytes)
  5. Make sure the contents of the hire agreement are the same as in the Notice of Second Schedule.

Repossession

  1. The owner has the right to repossess any goods when:-

    a ) the hirer defaults in  2 successive monthly instalments or the last instalment. In the case where the hirer is deceased, defaults in 4 successive monthly instalments.                                                                                                                           
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    (b) The owner has served     upon the hirer a notice in writing of his intention to repossess the goods in the form setout in the Fourth Schedule of the Hire Purchase Act, 1967, and

    (c) The owner has given another notice 14 days after the above notice in (b) has been served.                                                
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    (d) A period of 21 days has expired after the service of the Fourth Schedule.
  2. A hirer who returns the goods within 21 days after the service of the Fourth Schedule Notice shall not be liable to pay:-
    (a) the cost of repossession;
    (b) the cost incidental to taking possession; and
    (c) the cost of storage
  3. The owner is required to give a notice (Fifth Schedule) to the hirer and every guarantor within 21 days after the goods have been repossessed giving the hirer the opportunity to settle his obligations.
  4. The owner must acknowledge taking possession by giving to the hirer a document acknowledging receipt of the goods, description of the goods, the date, the time and the place the owner took possession of the goods.
  5. The owner has the right to sell the repossessed goods upon the expiry of 21 days after the Fifth Schedule has been served upon the hirer
  6. The hirer has the right prior to the expiry date of the Fifth Schedule, to request the owner to return the goods to him:-

    (a) After paying all arrears with interest due and the cost incurred by the owner (cost of repossession, storage, maintenance, repairs) or

    (b) After settling in full the balance due and cost of repossession, storage, maintenance and repairs.
  7. The hirer has the right prior to the expiry date of the Fifth Schedule, to introduce to the owner a prospective buyer who is willing to pay for cash at a price not less than the estimated value of the goods set out in the Fifth Schedule.

Disposal Of Goods After Repossession

Where an owner takes possession of any goods comprised in a hire purchase agreement and intends to sell them:-

(a) by public auction, he shall be required to serve on the hirer a copy of the notice of such public auction; or

(b) otherwise than by public auction, he shall give the hirer an option to purchase the goods at the price at which he intended to sell them if that price is less than the owner's estimate of the value of the goods repossessed as stated in the Fifth Schedule.

Penalty

  1. Any person found guilty of an offence under this Act shall be liable to a fine not exceeding $3,000 or imprisonment not exceeding 6 months or both.                                                                                                                                 comic9.jpg (17679 bytes)
  2. Any person who sells the goods purchased under a hire purchase agreement without the consent of the owner is committing an offence under this Act and it found guilty, shall be liable to a fine not exceeding $10,000 or imprisonment not exceeding 3 years or both.                                                                                                                                                                        comic8.jpg (17599 bytes)

Problems

If you have any problems on hire purchase, do the following :-

  1. Try to settle your problems with the financier or owner.
  2. If not satisfactory settlement can be achieved with the financier, contact the Association of Hire Purchase Companies Malaysia at the following address :-

    Association of Hire Purchase Companies Malaysia
    Unit 605, Block C
    Phileo Damansara 1,
    9, Jalan 16/11,
    Off Jalan Damansara,
    46350 Petaling Jaya,
    Selangor
    (T) 03-76606801
    (F) 03-76606802

  3. If you are still unable to resolve your problems, contact the Director, Enforcement Division of the Ministry of Domestic Trade and Consumer Affairs at the following address :-

Director of Enforcement
Ministry of Domestic Trade and Consumer Affairs
24-26 Floor, 100 Putra Place
Jalan Putra
50622 Kuala Lumpur

Tel : 603 - 4043 3366

  1. The nearest Enforcement Office or Consumer Association.

Note : This guide should not be construed as a legal document. All guide books issued by this Ministry prior to the date this pamphlet will no longer be applicable.

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