Topic: EconomicsFinance

Last updated: March 1, 2019

Compare and contrast Vehicle Financing-i of Bank Islam is one of the Shariah-based products that allow their clients to own their dream vehicle under the contract of Murabahah (Murabahah to the Purchase Orderer “MPO”).

The operation of Vehicle Financing-i must be based on the Shariah Law and ensure the facility has compliant with the shariah requirement. While the CIMB Hire Purchase is a non-Shariah based products and it is based on the secular principles that allow the customer to finance the purchase of new and used cars under the agreement of Hire purchase. The operation of the CIMB Hire Purchase is governed by the Hire Purchase Act 1967 and the facility does not based on any religious laws or guidelines. After that, Vehicle Financing-i of Bank Islam required their clients take up a comprehensive Motor Takaful in the entire financing tenure for the purpose of financial protection.

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It is an Islamic insurance and Shariah compliant insurance option grounded in the Islamic transactions products. At the same time, it also provides optional choices for the clients whether to take up the Auto Financing Takaful Plan (AFTP) that provides the Takaful protection in the case of death or permanent disability. While CIMB Hire Purchase require their clients take up a comprehensive Motor Insurance to have a financial protection in case of accidents happen. It is a conventional insurance and non Shariah Compliant insurance.Under the Vehicle Fnancing-i, there is an element of Breach of Wa’d. The clients are required to compensate the Bank Islam due to the Breach of Wa’d (promise) that is the actual loss incur by Bank Islam for the undertaking of the purchase of vehicle. At the same time, Wa’d (promise) is a commitment made by one party to undertake something to the benefit of another party. The application of promise is apply to the Shariah-based financial institution.

In the CIMB Hire Purchase, there is no element of Breach of Wa’d exist because it is not a Shariah-based financial institution but the clients has to compensate the CIMB Bank for any loss caused by he/she. Besides that, Vehicle Financing-i of Bank Islam is a term financing that calculated based on the fixed rate while the CIMB hire purchase is calculated based on either fixed or variable rate. The financing rate will depends on the loan amount, loan period and car brand such as national car and non-national car. The financing rate of Vehicle Financing-i for national vehicle is from 3.00% to 3.60% per annum and non national vehicle is from 2.90% to 3.35% per annum which is fixed throughout the tenure of the loan.

While the financing rate of CIMB Hire purchase for national vehicle and non-national vehicle can be divided into fixed and variable rate. The minimum fixed rate of national vehicle is 4.45% per annum and minimum variable rate of national vehicle is base lending rate (BLR) plus 1.45% per annum. However, the minimum fixed rate of non-national car is 4.00 % and the minimum variable rate of non-national vehicle is base lending rate (BLR) plus 0.70% per annum.

In the event of early settlement of Vehicle Financing-i, Bank Islam will undertake to grant their clients an Ibra’ (rebate) which is equal to the deferred profit at the time of loan settlement. Ibra’ (rebate) can be determined and calculated as: Ibra’ /rebate on early settlement = Deferred Profit. While in the case of CIMB Hire Purchase, an individual can enjoy a rebate which is the refund of the term charges for the unused loan tenure. Rebate is determined and calculated based on the formulae stipulated in the Hire Purchase Act: Rebate = Original loan tenure (original loan tenure+1) x Term changes.

However, an early settlement amount of the variable rate is determined based on the outstanding amount plus term charges accumulated and calculated up to next due date of loan payment.In the Vehicle Fnancing-I, it has offered other Vehicle Financing-i packages such as Superbike Financing-i and Vehicle Financing-i GradHitz. At the same time, Vehicle Fnancing-I is a standard application for hire purchase and the margin of finance is up to 90% but Vehicle Financing-i GradHitz can be funds up to 100% which is a special package for a specific group of individuals. However, the margin of finance of the CIMB Hire purchase is also up to 90% which is similar to the standard application of hire purchase offer by Bank Islam but there is no other package available. Moreover, the requirement of the Vehicle Financing-i is the individual must be minimum age of 18 years old at the time of application and not exceeding 60 years old at the end of payment period while the CIMB Hire Purchase require the individual must be at least 18 years old and who are under 21 years old must be provide with a guarantor and should not be older than 70 years old at the maturity of the financing period.

However, there are similarities between Vehicle Financing-i and CIMB Hire Purchase which is the individual must be a Malaysian and fixed income earners who must has a minimum annual income of RM24, 000. The individual must be fulfills all the requirements in order to be eligible for Vehicle Financing-i and CIMB Hire Purchase.


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