Hire Purchase Basic Rules

Hire Purchase is a banking facility for Vehicle financing and has been widely used in Malaysia. It constitutes of an agreement of letting of goods with an option to purchase and an agreement for the purchase of goods by installments.

This facility is governed under the Hire Purchase Act 1967 (Amendment 2010) of which it underlines the basic rules and principles of the product. It also dictates the rights of the hirer as well as the Owner.

Amongst of the rules required are:

The margin of finance must not exceed 90% of the purchase price;

Motor takaful/insurance must be obtained for the first twelve month and declared in the Hire Purchase-i agreement;

Servicing of notices under the Hire Purchase Act 1967;

Failure to abide to the rules may cause the agreement be unenforceable and the Bank/Owner be guilty of an offence under the act.

An initiative from the Islamic banking sector to introduce a competitive product to meet with public demand the need for Islamic facility for the same purpose. Thus, some of the terms and conditions are amended to be in line with Shariah principles while the detrimental requirement of the Hire Purchase Act remains in tact.

The significant difference between the Islamic HP and the conventional one is that Islamic HP contract involves a combination of two different contracts that run separately in sequence while the conventional HP combines Hire and Purchase contracts in one agreement.

HP Act is under the purview of the Ministry of Domestic Trade.

Sources: http://bankinginfo.com.my
 

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