Are you planning to get into a hire purchase agreement and you just cannot figure out how it works? If you are a citizen or a permanent resident in Singapore, you can stipulate a hire purchase agreement provided the total value of the vehicle you want to buy does not exceed $55,000 (excluding the cost of the certificate of entitlement). If you are a foreign resident in Singapore, you can also enter a hire purchase agreement provided you have a local guarantor to back you up.
But there are lots of important aspects you need to know in relation to a hire purchase agreement, so hold on. The following guidelines will help you acquire a comprehensive knowledge of the commonly used terms in the sphere of hire purchase.
- A Valid Hire Purchase Agreement. Remember that in Singapore a hire purchase agreement is deemed as valid only if it is drawn up in writing and is in English. Furthermore, it should be in accordance with all the prerequisites specified in the Hire Purchase Act 1969 and the consecutive Hire Purchase Amendment Act 2004. If not, this agreement has no legal validity and is considered null or void.
- Required Documents. Heaps of documents are needed for a hire purchase agreement so you must arrange these beforehand in order not to be caught unprepared. Some of these include identification card/passport, the most recent income tax declaration, employment passes and certificates, salary slips and credit report.
- Chosen Guarantor. Your bank may request a supplementary guarantee to your application in the form of a guarantor. This person nominated by you is none other than the one who will be responsible for your hire purchase agreement in case you fall short of your commitment to the bank or finance company.
- Deposit To Be Paid. Usually, a 10% deposit of the total cash value of your vehicle is needed to be paid in advance. However, other banks may necessitate or may oblige you an elevated percentage.
- Maximum Financing Arrangement. More or less, in Singapore, you can normally get hold of a maximum financing of 90% (total car value) from the bank.
- Fixed or Variable Interest Rates. Depending on your agreement with the bank, the interest rate of your hire purchase agreement can differ. As a general rule, interest rates can be fixed or variable. The advantage of a fixed interest rate is that it is clear, definite and there is no surprises while a variable one may oscillate and may largely follow the bank’s existing lending rate (BLR). Computation of variable interest rates depends on the original outstanding balance on the hire purchase agreement. Usually, banks or finance companies offer a fixed interest rate. But what you need to know is the Effective Interest Rate (EIR) that will be given to you, which will likely to prevail over a long period of time.
- Monthly Instalment Payments. You should take note that a penalty fee will be requested to you for past due payments on your hire purchase financing agreement. A penalty fee for delayed payments is usually a condition of a hire purchase agreement in Singapore. In case you fail to meet your monthly payment commitments, your car maybe repossessed by the bank.
- Major Transparency. Take note that the Hire Purchase Amendment Act was enacted in 2004 to offer major transparency in the financial market. A remarkable focus was also given on consumer protection and education to allow them the opportunity to have safeguards and to come up with fitting and appropriate choices. As part of this transparency requirements, banks or car dealers are obliged to grant hirers or consumers specific information in relation to the hire purchase agreement, including price of the vehicle, method of calculating the loan balance, effective interest rate, interest rate for overdue instalments and other administrative fees.
- Annual Car Insurance. A car insurance is compulsory in Singapore and is also an important requisite in a hire purchase agreement in Singapore. Aside from that, be sure that your car insurance is updated and renewed every year.
Step-by-Step Procedure for a Hire Purchase in Singapore
- Choose your car dealer and select the car you want to buy. Pay the minimum deposit, usually 10% of the total car value.
- Provide and submit all the required documents to the bank. Then after, the bank will pay the rest of the total car value, which means the remaining 90%.
- Draw up a hire purchase agreement with the bank, give your consent on the interest rate to be applied and the monthly instalment payments that you will regularly provide.
- As soon as the hire purchase agreement is approved and signed by both parties, the dealer delivers you the car.
- Always provide your monthly instalment payments. Once the hire purchase agreement is terminated, you are now the owner of the car.
Your Imperative Obligation in a Hire Purchase Agreement in Singapore
Your most imperative obligation is to comply with and to observe all the terms specified in the hire purchase agreement. Other important obligations you should remember are the following:
- Maintain in a secure place a copy of the hire purchase agreement, payment receipts and related documents.
- Provide regular payment of monthly instalments together with the agreed interest to your bank.
- Don’t put up for sale or get rid of any part of the car until you have completely settled what you owed on your hire purchase agreement.
- Take particular care of the car.
- Provide information of the location of the car when the bank makes such a request.
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