Hire Purchase-i

Hire Purchase-i is vehicle financing based on the Shariah concept Al Ijarah Thumma Al Bai (AITAB).

Shariah

The Islamic law which is derived from various sources - the Quran, the Hadith, the Sunnah, ijma' (consensus of Muslim scholars), qiyas (analogy) and ijtihad (personal reasoning) of the Muslim jurists. It covers every aspect of life.

Al Ijarah Thumma Al Bai

There are two contracts involved in this concept. The first contract, leasing contract, and the second contract, a sales contract. The contracts are undertaken one after the other.


How is Hire Purchase-i transacted?

Hire Purchase-i

Under the Al-Ijarah contract, the hirer (customer) hires the goods from the owner (the bank) at an agreed rental over a specified period. Within the hiring period, the hirer signs the leasing contract for the goods from the owner at an agreed price. During the period of the agreement, the bank owns the vehicle.

Upon settlement of the hire rentals, the Sales Contract will be executed, thus transferring the ownership of the vehicle from the bank to the hirer.

However, in the event of the customer failing to perform his obligation to service the hire rental or performs otherwise from the terms and conditions stated in the agreement, the bank has the right to exercise reasonable actions to mitigate its losses.


General Overview of Hire Purchase Facility

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 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:

  1. The margin of finance must not exceed 90% of the purchase price
  2. Motor takaful/ insurance must be obtained for the first twelve month and declared in the Hire Purchase-i agreement.
  3. Servicing of notices under the Act

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.

For further information, please call our Contact Centre at 03-8230 2222, or visit the nearest AFFINBANK / AFFIN ISLAMIC branch today.

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