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If you already know this month's instalment will not be paid in full, the worst move is waiting for the lender to call. Acting early — even if it is only a phone call to ask — almost always leaves you more options than acting after formal notices have started.
This page sets out what actually happens, what the Hire Purchase Act 1967 requires a lender to do before taking a vehicle, and the protections most borrowers do not know they have.
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Everything below describes a floor — the minimum a lender must do before it can take a car. None of it is a reason to let matters get that far. The options available to someone who is one payment behind and talking to their lender are far wider than those available to someone who has received a formal notice.
A missed instalment usually produces reminders within days — SMS, calls, letters. If arrears continue, contact becomes more frequent and more formal, and additional costs begin to accumulate under the terms of the agreement you signed.
Each lender has its own internal collections policy, and how quickly it escalates is a matter of that policy and your agreement. What is not a matter of policy is the point at which the lender wants to take the vehicle. That is governed by statute, and the statute is specific.
Section 34(c) of the Hire Purchase Act 1967 voids any term of an agreement requiring the hirer to pay interest on overdue instalments above:
| Agreement type | Maximum interest on overdue instalments |
|---|---|
| Terms charges at a fixed rate | 8% per year |
| Terms charges at a variable rate | 2% above the prevailing rate of terms charges |
In both cases the Act specifies simple interest calculated on a daily basis, unless some other rate is prescribed. A term that exceeds this is void — not merely unfair.
Under section 16(1), an owner may not exercise any power of taking possession of the goods over unpaid instalments unless all of the following are true:
Two successive defaults is not the same thing as being two months late, and the twenty-one days runs from service of the notice, not from the first missed payment. Where the hirer has died, section 16(1C) raises the threshold to four successive defaults.
This is the most valuable protection in the Act and the one least often mentioned. Where the instalments you have paid amount to more than seventy-five per cent of the total cash price, section 16(1A) provides that the owner shall not exercise any power of taking possession unless it has obtained an order of the court. The Fourth Schedule notice and its twenty-one-day period still apply on top of that, under section 16(1B).
Check the threshold against the right number
The test is on instalments paid measured against the total cash price — not against the amount financed, and not against how far through the tenure you are. Someone near the end of a long agreement may well be past 75% without realising it. Work it out before assuming the lender can act on its own.
The Act continues to impose obligations after possession is taken, and the deadlines are short in both directions.
Redemption means clearing the balance, not resuming the old instalments. It is a demanding option. But the window exists, it is short, and it starts running from a notice — which is why keeping every notice with the date it arrived is not administrative fussiness.
If the vehicle is eventually sold for less than the outstanding balance, the shortfall does not disappear. That is one of the reasons a voluntary sale, arranged while you still hold the car, is often a better outcome than repossession.
One option that is not an option: handing the car to someone else to “continue the payments”
An informal transfer leaves the agreement — and the debt, and the credit record — in your name, while the vehicle is with someone you cannot compel to pay. It also typically breaches the agreement and voids the insurance, because the registered owner and the person driving no longer match.
The Hire Purchase Act 1967 sets the floor, and it is expressed in defaults rather than months. Under section 16(1) an owner may not take possession over unpaid instalments unless there have been two successive defaults of payment and a written notice in the form of the Fourth Schedule has been served, with a period of not less than 21 days from service before it expires. Your agreement may give you more than that, never less. If the hirer has died, section 16(1C) requires four successive defaults instead of two.
Yes. Section 34(c) of the Act voids any term requiring a hirer to pay interest on overdue instalments above eight per cent per year where the agreement carries terms charges at a fixed rate, or above two per cent over the prevailing rate of terms charges where the rate is variable — as simple interest calculated daily, unless another rate is prescribed. Late-payment administrative fees vary by lender, but the arrears interest rate itself is capped. If the figure in your agreement looks higher than that, raise it with the lender.
It is the point at which repossession stops being something a lender can do on its own. Where the instalments you have paid amount to more than seventy-five per cent of the total cash price, section 16(1A) provides that the owner may not exercise any power of taking possession unless it has obtained an order of the court. Below that threshold, the Fourth Schedule notice route in section 16(1) applies. Note that the test is on instalments paid against the total cash price — not on time elapsed, and not on the loan amount.
There is a window. Section 17 requires the owner to retain possession of the vehicle for twenty-one days, and section 14(3)(b) allows the hirer to redeem it within twenty-one days of the Fifth Schedule notice by paying the net balance due together with the repossession and storage costs. That is a right to redeem, not a right to resume the old instalments, and it requires finding the money — but the window is real and it is short.
Section 16(3) requires the owner to serve a Fifth Schedule notice on the hirer and on every guarantor within twenty-one days after taking possession. Section 16(6) provides that if that notice is not served, the rights of the owner under the hire-purchase agreement thereupon cease and determine. That is a serious consequence written into the Act, and it is a reason to keep every notice you receive and to note the date each one arrived.
Arrears reported by a participating financial institution appear in CCRIS, and information may also be held by credit reporting agencies such as CTOS. Neither is a blacklist, and neither decides applications on its own. What changes a record is settling what is outstanding and then conducting accounts well over time.
Yes, and it is the single highest-value thing on this page. Restructuring, a revised tenure or a short forbearance are all far easier to arrange while the account is current or barely late than after formal notices have been issued. AKPK also provides free counselling and can help negotiate a debt management programme with participating lenders.
General educational guidance, not legal advice. The statutory provisions above set minimum requirements; your own agreement, the facts of your case and each lender's policy all affect what happens. If a vehicle is at risk, seek advice on your specific situation.