HIRE-PURCHASE or easy-payment?  You do not know.  All you know is that you and your friends had a great time watching the World Cup matches on your new 34” TV.

 

Does it does not bother you that you will still be paying for the TV when the next World Cup comes around?

 

Only by stretching the monthly payments to over 60 payments can you afford to buy the TV.

 

It is not surprising that many people do not  know that there is a difference between hire-purchase loans and easy payment schemes, aside from the fact that the low monthly payments make goods affordable.

 

Below are some of the common differences between the two schemes:-

 

Over the dinner one night, my friend and I discussed the refrigerators that we had bought from two different shops.  His was bought under hire-purchase whilst mine was bought under the easy-payment scheme.  He said that he is in a better position than me because of his hire-purchase agreement.  Is he correct?

 

He is right because hire-purchase agreements are regulated by the Hire-Purchase Act, 1967 whereas there are no laws regulating easy payment schemes.

 

For example, the Act lays down the terms to be stated in the contract and the rights of the hirer when the goods are repossessed.

 

Since there are no laws to regulate easy payment schemes, the terms of the contract for these types of schemes can be very unfavourable to the consumer.  Having signed it, the consumer is bound by it.

 

If there are no laws on easy-payment schemes, does it mean that I am totally unprotected when I buy these electrical applicances from the shop?

 

No, you are not.  For example the shop still has to sell you a product that is of acceptable quality and fit for the purpose for which it is ordinarily used for.

 

If the goods are faulty, you can ask for it to be repaired for free.  Where the fault is a major one, you may even ask for a replacement or your money back.

 

Your rights (like those above) are protected under the Consumers Protection Act 1999 and cannot be taken away from you by the easy-payment agreements.  However, you do not enjoy the extra rights provided for under the Hire-Purchase Act.

 

How do I know whether I have entered into a hire-purchase agreement or an easy-payment scheme since under both schemes I will be paying monthly instalments?

 

A hire-purchase agreement will state in clear terms that it is a hire-purchase agreement.  Further, the agreement will have to meet all the requirements provided for under the Hire-PURCHASE Act (for example, on particulars relating to information on interest and monthly payments).

 

If it is an easy-payment scheme the word “hire-purchase” will not be there in the agreement.  For example, if you have bought your goods under the easy-payment scheme offered by Courts Mammoth, you would notice that their agreement is called “Chattel Agreement”.

 

Another company may use words like “Easy Payment Sales Agreement” on its agreement.

 

Since easy payment schemes are not regulated, shops involved are actually free to draw up their agreements in any way they like.

 

However, even before you view the agreement, the purchase is likely to be made under the easy-payment scheme if no deposit or a very small deposit is asked for.  The situation is different in a hire-purchase agreement.  It is compulsory for the hirer to pay a minimum deposit of 10% of the price of the good to the owner.

 

I have not been able to keep up with my monthly instalments.  Can the company simply take back the item because I missed my instalments?

 

If the good was bought under hire-purchase, the Hire-Purchase Act lays down the conditions the finance company has to follow when it wants to repossess the goods.

 

Under the Act, before a finance company can repossess the item, the following conditions must first be satisfied:

 

·         The hirer must have failed to pay two successive instalments and must have been served the Fourth Schedule (repossession) notice.

 

·         On being served the Fourth Schedule, he has 21 days to settle the arrears, failing which, the company can repossess the item.

 

·         Within 21 days of repossession, the company must serve the hirer with the Fifth Schedule notice which shows among other things, the estimated present value of the item.  If the hirer does not act within 21 days following the date of the notice, the company can sell off the item.

 

·         If the company sells by public auction, it has to serve the hirer a copy of the notice of the public auction not less than 14 days before the date of the auction.

 

·         If there is no public auction the company is required to give the hirer an option to purchase the item at a price the company intends to sell if the price is less than the company’s estimate in the Fifth Schedule.

 

·         Where the item is sold at an amount that exceeds the sum that the hirer still owes the company, then the company must refund the hirer the balance.  If it is sold for an amount which is lesser than the loan amount, then the company can still bring an action for the differential sum.

 

·         Under the easy-payment scheme, the conditions on repossession are those which are contained in the contract signed between you and the company.

 

The company has taken back my settee set, why does it still say that I owe them money?

 

It is because you probably still do owe them some money.  You have taken a loan and it has to be repaid whether you are still in possession of the item or not.

 

This situation could have arisen (under either the hire-purchase or easy-payment scheme) because the estimated value of the repossessed item is worth less than what you still owe the company.

 

I can afford many of the electrical appliances that I have in my house only because I pay for these items by monthly instalments.  These monthly instalments are beneficial to consumers and businesses because the interest charged is so low.

 

The truth is that businesses benefit from these monthly instalments more than consumers.

 

Furthermore, the advertised hire-purchase interest rates are not as low as you think.  The interest rate that is advertised does not reflect the actual cost of borrowing.

 

For example the advertised interest rate of 10% for a hire-purchase loan actually works out to be 18% per annum.

 

How does this work?

 

HP interest is charged on a flat rate based on the initial sum borrowed.  “Flat rate” means that interest is calculated on the total principal irrespective of any repayment made over the loan period.  It does not take into consideration that as you pay your monthly repayments, you owe the company less each month.  In other words, even though you repay a part of the loan every month, the interest is charged on the total principal right until the last instalment.

 

In fact the real cost of borrowing can be found in the Hire-Purchase agreement.  In the section where the summary of payments is, you will see two sets of interest quoted. 

 

One is called the term charges (interest) per annum and the other is the annual percentage rate.  The annual percentage rate reflects the actual cost of borrowing. 

 

For example, if the term charge is 10% then the annual percentage rate is 18%.  And if the term charge is 6% than the annual percentage rate is printed as 11%.

 

Under the Hire-Purchase Act, the maximum interest or term charges that can be charged is 10% per annum.

 

The situation is even worse for those who buy products through easy-payment schemes because there is no limit to the interest that can be charged, nor is there any necessity to reveal the interest charged.

 

That is likely to be the reason why advertisements on easy payments tend to emphasise on the low monthly payments and silent on the interest rates.

 

When I pay on instalments, at what point does the goods belong to me?

 

If it is on hire-purchase it is yours only when you have paid all the instalments.  Until then it belongs to the finance company which has given you the loan.  You use it but the finance company owns it.

 

Under the easy-payment scheme you are actually the owner once you have paid the first instalment.  However, the agreement that you have signed will give the lender the power to come after you when you default.

 

The contract may, for example, state that you have agreed to use the item as security with the company in return for being given a longer time to pay for the item.  As a result the company has a right to the goods when you cannot meet the payments.

 

So it really does not make much difference at which point you become the owner of the goods since you will still lose it if you cannot keep up with the payments.

 

At first the monthly payments seemed reasonable but going home and calculating how much the total instalments would cost me, I have decided that the computer is not worth getting.  How can I withdraw from the agreement?

 

Only if the other party agrees to you withdrawing, can you actually withdraw from the contract.  Most of the time the other party may not be agreeable.  Normally, you cannot withdraw once you have entered into a contract, you are bound by it in the absence of vitiating elements.

 

The fact that you were sweet-talked into it by the salesman or that it was a hasty decision on your part is no grounds for rendering the agreement unenforceable.

 

What the Hire Purchase Act lacks is a “cooling off” period to allow the consumer to reconsider his decision.  During the “cooling off” period he does not take possession of the goods and can cancel the deal if he changes his mind.

 

 

Source: Utusan Konsumer August 2002, Published by Consumers’ Association of Penang