In the past, there has been some presentation of opinions that are not entirely accurate especially regarding the calculation of interest rates for car and motorcycle hire-purchase, which has been spread on social media as a 'reducing balance' interest rate, similar to a housing loan contract.

Regarding the car and motorcycle hire-purchase contract model according to the announcement of the Committee on Contracts, Re: Making car and motorcycle hire-purchase business a controlled contract business B.E. 2561, revised toreduce consumer exploitation by business operators or financiers, which came into effect on July 1, 2561.

To clarify the team at AutoinfoOnline interviewed Phikhanet Tapuang Deputy Secretary-General of the Office of the Consumer Protection Board (OCPB), who confirmed that car loan interest is not calculated using the “reducing balance” method. Here's what he said: 

Clip Interview Phikhanet Tapuang Deputy Secretary-General of the Office of the Consumer Protection Board (OCPB)

Easy to read 

Interest Calculation Method Remains Unchanged

"Interest calculation for car and motorcycle hire purchase still uses the Fixed Principal (Flat Rate) method, as before.” as used in calculating hire purchase payments for each installment.

Must Disclose... Debt Burden Schedule According to Hire Purchase Contract

Business operators or financiers must prepare a table showing the contractual debt for each hire purchaser, specifying the actual annual interest rate (Effective Interest Rate) for the benefit of consumers to be informed of the actual annual interest burden (Effective Interest Rate), which is used to deduct principal using the reducing balance method, as in the example below: 

Early Settlement Must Receive a Discount

If the hire purchaser wishes to close the hire purchase account or pay the entire amount in one go before the contract expires, the hire purchaser will receive a 50% refund discount on interest not yet due.

Default Penalty (Late Payment) Interest Not Exceeding 15 % Per Annum

In case the hire purchaser defaults on installment payments (late payment), the financier may charge a penalty to the hire purchaser not exceeding the actual annual interest rate (Effective Interest Rate) plus 3%, but not exceeding 15 % per annum.

If the car is repossessed (Hire Purchaser/Guarantor Get Rights First)

If the car is repossessed, the hire purchaser must be given the right first. The hire purchaser can buy back the car as a first priority, and if the hire purchaser does not buy back within 7 days, the guarantor will have the right to buy back instead of the hire purchaser within 15 days. Before and after selling the car at auction or public sale, the financier must notify the hire purchaser and the guarantor every time, and must also inform the hire purchaser where the car will be sold.

Financiers are Prohibited from Collecting Any Fees or Expenses Other Than Those Specified in the Announcement 

Financiers cannot charge a car tracking fee in case of contract termination (as it is the financier's duty to track and retrieve the car or motorcycle), except for fees from the Department of Land Transport, as follows...

- Annual vehicle tax

- Surcharge due to late tax renewal 
- Fee for changing engine, car color, fuel type (per item)
- Fee for transferring car or motorcycle registration 
- Fee for vehicle license plate
- Fee for replacement of vehicle tax sticker

- Fine due to changing engine, car color, and fuel type 
- Insurance premium according to the law on protection for road accident victims
- Installment collection fee (actual cost)

New Hire Purchase Contracts Only Cover

1. Must be a natural person only (does not include juristic persons)

2. Vehicles purchased for personal use only (if used for transport, trade, or one's own business, they will not be covered by this announcement)

3. No retroactive effect for those who entered into hire purchase contracts before July 1, 2561

Clarifying: Why? New car hire purchase contracts cannot use the 'reducing balance' installment method 

Because the asset's value is not like a house. Once purchased, a 'car' depreciates continuously, unlike a house, which tends to increase in value over time. Additionally, it must adhere to general international standards to maintain accounting standards.

Details of the announcement Full version, click here

What to do if you buy a car or motorcycle and are exploited

1. Contact Hotline 1166

2. File a complaint at the Office of the Consumer Protection Board (OCPB), Ratthaprasasanaphakdi Building, 5th Floor, Government Complex, Chaeng Watthana Rd. 

3. In other provinces, at every provincial hall

4. Or send a letter to the Office of the Consumer Protection Board (OCPB), 120 Ratthaprasasanaphakdi Building, 5th Floor, Government Complex Commemorating His Majesty the King's 80th Birthday, 5th December B.E. 2550, Chaeng Watthana Rd.