How these figures are worked out
Hire purchase — a flat rate, not a reducing one
A Malaysian hire purchase is quoted on a flat rate. The term charges are fixed at the start on the whole amount financed, for the whole tenure — they do not fall as you pay the balance down:
- Amount financed = cash price − deposit − trade-in
- Term charges = amount financed × flat rate × tenure in years
- Monthly instalment = (amount financed + term charges) ÷ number of months
Because the balance reduces but the charges do not, the true cost in reducing-balance terms is close to twice the flat rate. That is the effective rate shown in the summary, and it is the figure to use when comparing a hire purchase against a term loan or an overdraft.
Rule 78 versus the effective interest method
The instalment is the same either way — what differs is how the charges are spread across the term.
- Rule 78 (sum-of-digits) loads more interest into the early months. It is the apportionment behind the statutory rebate in the Hire-Purchase Act 1967, and it is what the financier's own statement will normally follow.
- Effective interest charges interest on the outstanding balance at the constant rate implicit in the contract. This is the basis required by MPERS / MFRS for the accounts.
Over the full term both give identical totals; the difference is timing, and it reverses by the end. For a material facility, use the effective interest view for the books and keep the Rule 78 view for reconciling to the financier.
Early settlement rebate
Where a hire purchase is settled early, the Hire-Purchase Act 1967 gives the hirer a statutory rebate on the unexpired term charges, calculated on the Rule 78 basis:
rebate = term charges × n(n + 1) ÷ N(N + 1)
where n is the number of instalments still to run and N is the total number of instalments. The settlement figure is the balance of instalments outstanding, less that rebate, plus any administrative charge the financier imposes. Treat the result as indicative — always ask the financier for a written settlement quotation.
Term loan
A term loan is a reducing balance facility. Interest each period is charged on what is still outstanding, so the interest portion of each repayment falls and the principal portion rises. The level instalment is the standard annuity:
instalment = P × i ÷ (1 − (1 + i)−N)
where i is the rate per period and N the number of repayments. Any extra payment goes entirely against principal, which is why even a modest top-up shortens the tenure noticeably — the calculator shows the interest and the months it saves.
The year-end split
At each balance sheet date the liability has to be split between what falls due within twelve months and what falls due after. Enter the period end and the tool does it from the schedule:
- For a hire purchase, the gross figure is the total minimum instalments still to run. Deduct the unexpired term charges — the interest in suspense — to get the present value, which is the liability that goes on the balance sheet. The current portion is the present value of the instalments falling due in the next twelve months.
- For a term loan, interest accrues as it is incurred, so only the principal outstanding is a liability. The current portion is the principal repayable in the next twelve months; future interest is a memo figure, not a liability.
An instalment falling due on or before the period end is treated as paid. The maturity table gives the bands most sets of accounts disclose — within one year, one to two years, two to five years, and after five years.
Reconciling to the statement
A schedule built from the letter of offer will rarely agree to the financier's statement to the cent. Enter the statement figures and the tool shows the difference on each of the three lines that matter — principal outstanding, interest charged for the period, and interest still in suspense. A difference is not automatically an error: the usual causes are a different cut-off date, an instalment paid in advance or in arrears at the year end, an administrative or late charge the schedule does not model, a rate revision during the term, or the financier allocating on Rule 78 while the accounts use the effective interest method. Agree the reason before you post it.
More than one facility
Most companies carry several. Work each one out on its own tab, save it, and the All facilities tab splits every one of them at a single company year end and adds them up. Two things it deliberately does not do:
- It does not merge hire purchase and term loans into one figure. They are different balance sheet lines — hire purchase creditors are carried net of interest in suspense, term loans at principal outstanding — so the summary totals them separately and only then gives a combined current and non-current.
- It does not re-date anything. Each facility keeps its own first instalment date; only the period end is shared. A facility that had not yet started at the year end correctly shows its full amount financed as the liability.
The saved facilities live in this browser on this device. They are not uploaded anywhere, and clearing your browser data will clear them — export the workbook if you need to keep them.
Getting it into the books
On taking up a hire purchase, the usual entries are:
- Dr Asset (cash price) · Dr HP interest in suspense (term charges) · Cr HP creditor (total payable) · Cr Bank (deposit)
- On each instalment: Dr HP creditor · Cr Bank; and Dr Interest expense · Cr HP interest in suspense, for the period's share of the charges
- Split the HP creditor between current and non-current at each year end — the year-end section does this for you
For a term loan, only the interest column hits the profit and loss; the principal column reduces the loan liability.
What this tool is not
It is a working aid for planning and for preparing accounts. It is not a quotation, an offer of credit, or tax advice, and it does not account for insurance, road tax, processing fees, stamp duty, late charges or a rate that moves during the term. Confirm every figure against the financier's own letter of offer and statements.
Everything you type stays in this browser — nothing is uploaded, and your entries are remembered on this device only.
