Hire Purchase Agreement: An Overview
At some point in your life you’ve likely entered a Hire Purchase Agreement. In non-legal terms, it’s better explained as a type of payment system that’s similar to an Instalment Purchase system. It allows you to “hire” goods until the full price has been paid – that’s when it’s considered a “purchase”. In Malaysia, the laws and regulations pertaining to this type of system are covered
How does it work?
This kind of system allows you to purchase something on a credit basis. First you pay an initial deposit (eg. 30% of the total price) and receive the item on credit. You then have to pay the rest back (ie. the remaining 70%) in smaller deposits along a timeline until the full amount has been paid. Ownership of the goods are not yours until the debt has been paid. It’s important that ensure you keep a copy the agreement, receipt and other related document.
If you sell the goods to a third party before you’ve completed payment of the last instalment, the third party doesn’t get a better title on the goods. If you don’t pay up the instalments or delay payments, the owner has the right to repossess the goods.
Repayment timelines can be anywhere from within a year or more depending on the type of goods you’re buying. Hire purchase systems are often more advantageous to consumers like you, than the sellers themselves. For example, car loan repayments can be served up to 9 years. Its usage is popular for goods like cars, property, business equipment, high end electronics and industrial machinery as it allows you to plan your finances accordingly.
Some of the common basic terms in a hire purchase agreement include:-
- Guarantor: someone you nominate who is liable for your hire purchase agreement if you fail to make payments
- Margin of finance: the amount of financing you can receive for hire purchase goods like loans
Make sure you read the agreement carefully before you sign it! You don’t want to accidentally land yourself in hot water by breaching the terms of your agreement.