What you
should
know...
Car financing
C. Amendments to the HP Act (For car owners
with loans taken after 1 November 2004)
The HP Act was substantially amended in 2004. The
amended Act, which came into effect on 1 November 2004,
will affect HP Agreements signed on or after that date.
The most important amendment for car buyers is the
method of interest computation. Interest rate is no longer
mandated to be computed on a flat rate basis. Banks are
free to quote interest rates on a flat rate basis or any other
basis eg monthly rest or variable rate. If interest is quoted
on a flat rate basis, the Rule of 78 will continue to be used
to calculate interest rebate for early settlement. Also, in
the case of early settlement of the loan, banks are allowed
to levy an additional charge for early settlement. You should
ask your bank on the terms and conditions of the loan and
the method of interest computation before taking up the
loan.
The table below summarizes some of the major changes to the HP Act.
Particulars
HP Act Before 1 Nov 04
HP Act After 1 Nov 04
Cars valued up to
$55,000 without COE
Mandatory to be on flat
rate basis.
Minimum 10% of the car
price.
Fixed at 3% over local
banks prime rate.
Interest Rebate based on
Rule of 78
(please see Illustration 2).
No penalty / additional
charges for early
settlement
a.
b.
c.
d.
e.
Banks are free to quote
interest rates on flat rate
basis or any other basis, eg
monthly rest.
No minimum deposit
requirement
Not fixed. Banks to decide.
If interest rate is computed
on flat basis, interest rebate
based on Rule of 78 applies
(see Illustration 2). For
interest rate on any other
basis, please check with your
bank.
Banks are allowed to charge
a fee for early settlement.
This is to cover some of the
costs incurred by banks
whenever a loan is repaid
early. There is no typical
amount charged so you
should check with your bank
on the additional charges
you are liable for.
a.
b.
c.
d.
e.
Cars valued more than
$55,000 without COE
HP Agreements