Quick Summary: Hire purchase builds equity and offers ownership benefits (higher payments), while operating lease provides flexibility and lower monthly costs (no ownership). Choose based on your cash flow, fleet strategy, and long-term business goals.
Understanding the Two Options
What is Lorry Hire Purchase?
Hire Purchase (Sewa Beli) is a financing arrangement where you:
- Pay an initial deposit (0-10% with Ing Heng Credit)
- Make fixed monthly installments over 5-9 years
- Gain full ownership after the final payment
- Build equity in the asset throughout the term
The lorry is legally yours after completing all payments. You're responsible for maintenance, insurance, and any modifications needed for your logistics operations.
What is Operating Lease?
Operating Lease is essentially a long-term rental where you:
- Pay lower monthly "rental" payments
- Use the lorry for a fixed period (3-5 years)
- Return the vehicle at end of term (no ownership)
- May include maintenance packages
The leasing company retains ownership. You have usage rights but no equity buildup. This is often called "contract hire" in the logistics industry.
Detailed Comparison Table
| Factor | Hire Purchase | Operating Lease | Better For |
|---|---|---|---|
| Down Payment | 0-10% | 0-5 months deposit | Hire Purchase |
| Monthly Cost | Higher (includes principal) | Lower (rental only) | Operating Lease |
| Ownership at End | Yes, full ownership | No, return vehicle | Hire Purchase |
| Asset Risk | Owner bears depreciation | Lessor bears risk | Operating Lease |
| Term Length | 5-9 years | 3-5 years | Operating Lease |
| Early Termination | Difficult, penalties apply | Flexible with fees | Operating Lease |
| Tax Deduction | Interest + capital allowance | Full rental payment | Tie |
| Modifications Allowed | Yes, owner discretion | No, lessor approval needed | Hire Purchase |
| Maintenance Responsibility | Owner (you) | Varies (often included) | Operating Lease |
| Resale Value Risk | Owner benefits/bears | Lessor bears risk | Operating Lease |
Cash Flow Impact Analysis
Understanding the cash flow implications is critical for logistics companies, especially with diesel prices at RM3.35/litre (up 55% since June 2024).
Hire Purchase Cash Flow
Example: RM150,000 Lorry (7-Year Hire Purchase)
- Down Payment (0%): RM0
- Monthly Installment: ~RM2,200 (at 3.5% interest)
- Total Payment Over 7 Years: ~RM184,800
- Asset Value at End: ~RM30,000-50,000 (resale)
Operating Lease Cash Flow
Example: RM150,000 Lorry (4-Year Operating Lease)
- Initial Deposit: RM6,250 (2.5 months)
- Monthly Rental: ~RM2,500
- Total Payment Over 4 Years: ~RM126,250
- Asset Value at End: RM0 (return vehicle)
Key Insight: Operating lease has higher monthly payments in this example but shorter commitment and no residual value risk. Hire purchase builds equity but requires longer commitment.
Tax Benefits Comparison
Both options offer tax advantages for Malaysian logistics companies, but structured differently:
Hire Purchase Tax Benefits
- Capital Allowance: Claim depreciation on asset value (20% initial + 20% annual allowance)
- Interest Deduction: 100% of interest paid is tax-deductible business expense
- Option to Capitalize: Can claim full purchase price over multiple years
Operating Lease Tax Benefits
- Full Rental Deduction: 100% of monthly rental payments are tax-deductible
- Simpler Accounting: No need to track depreciation or capital allowances
- Immediate Expense: Entire payment reduces taxable income in same year
Tax Planning Tip
Consult your tax advisor to model which option provides better after-tax cash flow based on your company's tax bracket, profit margins, and financial strategy.
Which Option Suits Your Logistics Business?
The right choice depends on your specific operational needs, financial situation, and growth strategy. Here are common scenarios:
Growing Fleet (5+ Lorries)
Build equity in assets, long-term cost savings, full control over fleet
Seasonal Demand Peaks
Flexibility to scale up/down, lower commitment during uncertain periods
New Logistics Startup
Preserve cash, lower monthly costs, easier to qualify
Established Route Contracts
Predictable long-term revenue, asset appreciation potential
Testing New Routes
Low-commitment trial before committing to asset purchase
Cross-Border Operations
Full control for APAD compliance, no modification restrictions
Port Klang & Cross-Border Considerations
With Port Klang handling 14.64 million TEUs in 2024 and the ASEAN Customs Transit System launching April 2025, cross-border logistics operators have unique considerations:
For Cross-Border Operations
Recommendation: Hire Purchase
- Full control for APAD permit modifications
- No restrictions on GPS system installation
- Can customize for Singapore/Thailand border requirements
- Long-term asset for established international routes
For Port Klang Last-Mile Delivery
Recommendation: Operating Lease (or mixed fleet)
- Flexibility to scale during peak seasons (CNY, 11.11)
- Lower commitment for variable demand routes
- Can add/return vehicles based on container volumes
- Maintenance often included (reduce downtime)
Diesel Price Impact: RM3.35/Litre Reality
Since diesel prices jumped 55% in June 2024, total cost of ownership matters more than ever:
Operating Cost Reality Check
A typical 10-ton lorry consumes ~40 litres per 100km. At RM3.35/litre:
- Per 100km: RM134 in fuel costs
- Per month (5,000km): RM6,700 in fuel
- Per year: ~RM80,400 in fuel alone
Financing Implication: With SKDS 2.0 fleet card, eligible operators can access subsidized diesel, but this requires owned or financed vehicles (not operating lease).
Why Choose Ing Heng Credit for Hire Purchase?
Down Payment
Preserve cash for operations, fuel, and driver costs
Interest p.a.
Competitive rates for logistics businesses
Fast Approval
Meet urgent contract deadlines
Get Started: Which Option Is Right for You?
Answer these questions to decide:
- Do you want to own the asset eventually? Yes β Hire Purchase
- Is your logistics demand stable year-round? Yes β Hire Purchase
- Do you need flexibility to scale fleet size? Yes β Operating Lease
- Do you operate cross-border routes requiring modifications? Yes β Hire Purchase
- Is cash preservation more important than building equity? Yes β Operating Lease
- Do you want SKDS 2.0 diesel subsidy eligibility? Yes β Hire Purchase
Still unsure? Contact our logistics financing specialists for a personalized recommendation based on your business needs.