Anyone who owns a car will have come across hire purchase or financing for ownership. But as we sign the agreement, how much do we know about our rights under the hire purchase laws?
Hire Purchase Act 1967 is applicable to all business of hire purchase in Malaysia. The Act was adapted from Hire Purchase Act 1960 New South Wales, Australia and was amended several times down before this. Before signing any agreement, below are the things you need to know about the law.
YOU DO NOT OWN THE CAR UNTIL YOU HAVE MADE THE FINAL PAYMENT
In a hire purchase arrangement, you first pay the deposit and settle the balance through monthly instalments. Until the final payment is made, you will not obtain legal ownership of the car. The minimum deposit is 10% of the cash price of the car. However, your banking institution may ask for a higher deposit at its discretion.
THE DEALER OF THE CAR CANNOT STAND AS GUARANTOR
Under Section 2 of the HP Act, the term ‘contract of guarantee’ does not include the dealer or a person engaged during the handover of the guarantee in the trade or business of selling goods of the same nature. In this case, the car dealer cannot stand as your guarantor. A person who agrees to be a guarantor will need to sign a letter of guarantee.
REPOSSESSION BY THE BANK
The bank can only repossess the car if you fail to make two (2) successive payments. Before repossession, they will:
- Issue you a notice, under the Fourth Schedule of the HP Act, giving you 21 days to settle the outstanding, failing which the car will be repossessed.
- Send you a reminder before the actual repossession.
Do note that if you have paid for 75% of the car instalments, the bank may only repossess with a court order.
YOU CANNOT SELL YOUR CAR WITHOUT FIRST SETTLING THE HIRE PURCHASE ARRANGEMENT
If you were to sell the car without settling the hiring, you are breaching the hire purchase agreement. Before selling the car, always ensure that you verify with the bank that all amounts due under the hiring has been settled by the purchaser and a document confirming it is handed to you.
THERE IS NO SUCH THING AS THE ‘SAMBUNG BAYAR’ ARRANGEMENT
‘Sambung bayar’, or the practice of pawning a vehicle on hire purchase from a bank, is a serious offence. Under Section 38 of the act, errant car owners could be fined up to RM30,000, jailed three years, or both. As the seller, if the new ‘purchaser’ does not service the instalments, you are still liable. As the ‘purchaser’, you have no recourse against the bank in the event that there are issues with the car. The bank did not contract with you.
NEVER SIGN BLANK AGREEMENTS
Section 4B of the HP Act prohibits the signing of blank agreements or documents. Doing so is also an offence under the HP Act.
YOU MAY SUE THE BANK IF THE CAR IS NOT OF MERCHANTABLE QUALITY
Under Section 7 (2) of the HP Act, the owner (the bank) has to ensure that the car is of merchantable quality. This is an implied term. However, it does not apply if:
- You have examined the car.
- The car is second-hand (and stated as such in the agreement) and the warranty pertaining to quality etc are expressly waived
No booking fee may be collected unless a form under the Second Schedule (summary of financial obligation) is duly completed and handed to the buyer. Failing to do so is an offence under the HP Act.
Find out more about the Hire Purchase law HERE!