When it comes to purchasing expensive items like cars or motorcycles in Singapore, many individuals and businesses turn to hire purchase as a viable payment arrangement. Hire purchase allows buyers to spread out the cost of their purchase through monthly instalments, making it an attractive option for those who lack sufficient funds upfront. In this article, we will delve into the concept of hire purchase, how it works in Singapore, its benefits and considerations, and its key differences from leasing.
What is Hire Purchase?
Hire purchase is a payment arrangement that enables buyers to acquire costly goods and assets without making a full upfront payment. Instead, a down payment is made, and the remaining balance, along with interest, is paid in instalments over a specified period. This arrangement allows buyers to manage their finances more effectively by spreading out the cost over time.
How Does Hire Purchase Work?
Hire purchase functions similarly to an instalment plan, where fixed monthly payments are made over several years with a predetermined interest rate. However, it differs from buying something on credit, as the buyer does not have ownership rights until the full payment is made. The lender offering the hire purchase, whether a bank or private financial institution, retains ownership of the goods until the buyer completes the payment. In case of payment default, the lender has the right to seize the assets. It’s important to note that the total cost of the purchase may be higher due to the inclusion of interest.
What Can Hire Purchase Be Used For?
Hire purchase is commonly used in Singapore to finance the purchase of cars and motorcycles. For personal use, individuals often turn to hire purchase to acquire vehicles, considering the high costs associated with car ownership. Similarly, those seeking to engage in food delivery services can explore hire purchase as an option to purchase motorcycles. Businesses, such as those in the catering, logistics, and cleaning industries, can also utilize hire purchase to establish and maintain a fleet of vehicles, allowing them to allocate working capital for other business needs.
The Difference Between Hire Purchase and Leasing:
Hire purchase and leasing are two distinct payment arrangements. Hire purchase involves eventual ownership of the asset after completing all instalments, while leasing allows for the use of the asset over a specified period without transfer of ownership. With leasing, the leasing company retains ownership rights, and the asset must be returned at the end of the lease. Additionally, maintenance costs are typically borne by the leasing company, whereas under a hire purchase agreement, the buyer remains responsible for repair and maintenance expenses.
How Much Can You Borrow with a Hire Purchase?
The maximum amount that can be borrowed through hire purchase in Singapore depends on the Open Market Value (OMV) of the vehicle. The loan-to-value (LTV) ratio and maximum loan tenure are determined based on the OMV. For vehicles with an OMV less than or equal to S$20,000, a maximum LTV of 70% of the purchase price or valuation price (whichever is lower) and a maximum loan tenure of 7 years apply. For vehicles with an OMV above S$20,000, the maximum LTV is 60%, with the same maximum loan tenure of 7 years.
What Are Your Options If You Cannot Pay Your Hire Purchase Instalments?
Defaulting on hire purchase instalments can lead to repossession of the asset and adverse effects on your credit score. However, there are alternatives to consider before reaching that point. First, negotiate with your lender to restructure the hire purchase plan by requesting a reduction in interest rates or an extension of the loan tenure to make repayments more manageable. Alternatively, you may request a deferral, allowing you to skip a few instalments without penalties or fees, giving you time to address urgent financial obligations. Refinancing your car loan is another option worth exploring, as it may offer lower interest rates and improved repayment terms, reducing your monthly instalments.
If you are considering hire purchase as a financing option for your car or motorcycle purchase in Singapore, Tradition Credit is here to assist you. We offer a free consultation to provide you with personalized guidance and help you navigate the hire purchase process. Our team of financial experts is ready to answer your questions and provide clarity on the best options available to you. Contact us today to schedule your consultation and take the first step towards acquiring your dream vehicle without the burden of upfront costs.