What Is Hire Purchase?

Hire purchase is one of the most commonly used methods to buy cars in Malaysia. The term “hire purchase” is often also referred to as “car loans”. In Malaysia, when you take out a loan from the bank to purchase a new car, you’re essentially entering into a hire purchase agreement with the bank.

Hire Purchase Agreement

In a hire purchase agreement, you are the user of the car, and are responsible for insuring and maintaining it, but the bank (or lender) remains the legal owner. To put it simply, you are “hiring” (think of it as “renting”) the car that is owned by the bank. As the hirer, you will have to pay monthly instalments to the bank based on what was agreed in your hire purchase agreement.

The instalments will typically include 1) an interest component (what the bank charges for this “loan”) and 2) a principle component (part payment of the total “loan” amount).

Once all instalments are paid up, the legal ownership of the car is transferred from the bank to you. This means, until you have completely paid off the loan amount agreed in your hire purchase agreement, you do not legally own your car.

Because of the way the car ownership is structured, if you fail to pay your instalments on time, the bank can repossess your car.

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