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A hire purchase (HP) agreement is one of the most common ways for people to buy private vehicles. If you take on a HP agreement, you become the hirer while the company financing the vehicle is the owner. As the hirer, you will have to pay instalments to the financier based on an agreed duration while you will have possession of the vehicle.
 
 
     
   
  As a hirer, it's your responsibility to make prompt monthly instalments to the banking institution. Should you default monthly payments , the banking institution has the right to repossess the motor vehicle hired to you based on the following circumstances:  
     
  Defaults payment for two successive monthly instalments or the final instalment
  Defaults payment for four successive monthly instalments in the case where the hirer is deceased
 
     
  Your balance due will increase as you will be subject to late payment penalty. Thus it is important that you are prompt in your instalment payment.  
     
     
     
     
  You can directly make a HP agreement with a banking institution or through a motor vehicle dealer who can submit your application for a HP facility to a banking institution.You as the hirer, will be given a written financial statement known as Second Schedule Part 1, which informs you of your financial obligations under the proposed HP agreement.  
     
  Your rights and obligations as a hirer  
     
 
Your rights:
To receive a copy of the HP agreement
To obtain any information regarding the account
To request a statement of outstanding balance (once every 3 months)
To settle the full outstanding amount early
To terminate the agreement at any time
 
     
 
 
Your obligations :

Not to remove, sell or dispose off the motor vehicle without the consent of the banking institution
To pay instalments on time
To inform the banking institution of any change of address

To continue to insure the motor vehicle after the first year and to inform the banking
institution upon renewal within 14 days before the current policy expires
 
     
  Rights and obligations of the banking institution  
     
 
Banking institution's rights:
To repossess the motor vehicle when you default in payment
To ask you to insure the motor vehicle

To charge you any fees relating to the enforcement of the HP agreement
To vary the term charges for variable rate financing
   
Banking institution's obligations:
To issue you with a copy of the HP agreement
To insure the motor vehicle in the name of the hirer for the first year
 
     
  Rights and obligations of a guarantor  
     
 
To receive a copy of the HP agreement.
To receive all notices on payment issued by the banking institution to the borrower.

To be discharged from your liability once the amount due to the banking institution is fully paid.
To take legal action against the hirer for breach of obligation.
To be indemnified by the hirer against claims by the banking institution after you have paid the amount due to the banking institution.
 
     
     
     
   
  Here are some important advice should you intend to take up a HP agreement from a banking institution:  
     
 
Do ensure that the agreement is in writing
Do read all the fine print in the written agreement
Do check that the purchase price and HP terms in the agreement are as agreed
Do make sure that you can afford the instalment payments for the duration of the facility
Do know your rights under the HP Act

Do know your obligations under the HP contract to ensure that you do not commit any actions leading to a breach

Do keep all documents pertaining to the HP agreement such as agreements, receipts, etc, in a safe place

Do pay your instalments to authorised persons only as indentified by the banking institution
 
     
 
Don't sign a blank or incomplete agreement or forms
Don't accept agreements that are not signed
Don't lose any documents pertaining to the HP agreement
Don't pay instalments to unauthorised dealers, persons or agents
Don't fail to inform the banking institution of any change of address

Don't sell/transfer/part possession of the motor vehicle to a third party without the banking institution’s consent
 
     
     
   
     
 
Normally a banking institution will engage a registered repossessor to repossess any motor vehicle. The reposseser must show his identity card (IC), authority card and repossession order issued by the banking institution before taking any action. Once he has repossessed the vehicle, the repossessor must immediately make a police report and bring the repossessed vehicle to the place indicated by the banking institution concerned.  
 
     
     
 
Before your banking institution can repossess the motor vehicle hired to you, your banking institution will need to serve you with a Fourth Schedule notice which is a notice in writing of the banking institution’s intention to repossess the motor vehicle.
   
This notice will expire in 21 days. You will receive a second notice 14 days after the Fourth Schedule is issued as a reminder that your motor vehicle will be repossessed upon expiry of the Fourth Schedule. You can avoid this by choosing to pay the outstanding arrears as stated in the Fourth Schedule before the 21-days notice expires or return the motor vehicle to the banking institution before expiry.
   
You will need to settle any outstanding debts less the value of the motor vehicle.
 
     
     
  The banking institution will issue you and every guarantor a Fifth Schedule notice within 21 days after repossession. You can ask the banking institution to return the motor vehicle to you by:  
     
 
Paying all outstanding arrears and out of pocket expenses incurred by the banking institution; or
Paying in full, the balance due and settling all out of pocket expenses
 
     
  You can also introduce a buyer to purchase the motor vehicle at the price indicated on the notice.  
     
 
     
  If you or your guarantor does not settle the outstanding amount within 21 days of the issued Fifth
Schedule notice, the banking institution will sell your motor vehicle by public auction or give you the option to purchase the motor vehicle at a price lower than the estimated price stated in the Fifth Schedule.
 
 
     
     
   
  Before committing yourself to the purchase of a motor vehicle through HP, you will need to work out a budget and determine how much you can afford to pay in monthly instalments. The monthly instalments that you will pay are inclusive of term charges (interest rates) based on either a fixed or variable rate offered by the banking institution which facilitates your hire purchase loan.  
     
     
  Taking a fixed rate  
  Applying for financing on a fixed rate allows you to make payments throughout the duration of the HP tenure without having the effect of interest rate movements on your amount payable. The banking institution will inform you of the interest charged and how much your instalments will be before you sign the agreement. This form of financing helps you maintain your repayments in the event the interest rate increases in the future.  
     
  Taking a variable rate  
  If you take on a variable rate for your hire purchase financing, your repayments will vary according to the movements of reference rates (eg, base lending rate or BLR). If the BLR increases, your interest rate will increase, thus making your monthly repayments higher. However, if the interest rate decreases in the future, you will earn the benefits of lower repayments, helping you save money.  
     
  Which one should you choose?  
  Both forms of financing have their own pros and cons. It depends on what your expectations of the interest rates are in the future. Therefore, it is very important to carefully weigh out your options by seeking advice from your loan officer, comparing rates from various banks, planning your financial goals and setting a budget that is realistic enough for your needs as well as your pocket.