Car financing - hire purchase and leasing

If you are like most people, paying cash to buy a new car just isn’t in the realm of possibility. And even if it's in the realm, you may not want to access and deplete your savings account to buy a new car, especially considering the high cost of buying a car in Hong Kong. 

According to a South China Morning Post article back in 2013, the best selling car in Hong Kong was the Mercedes E-Class whose 2012 model started at HK$474,000. A cheaper alternative was the Volkswagen Golf with a price tag of HK$239,000 at the time. Currently, the cost of a Volkswagen Golf 1.4 90 KW Trendline will set you back HK$250,000.

Owing to taxes on cars in Hong Kong, buying a car here is even more expensive than in countries like the United States.

If you are smart, you will look to financial options that, depending on your situation, may help in paying for that car, such as lease financing and hire purchase (HP).

This is a simple and straightforward type of car finance. You usually pay a deposit which is a fraction of the cost of the car, then you make fixed monthly payments over an agreed period before you get behind the wheel.

Here’s what you need to know before choosing this option:

• This form of finance doesn’t make the car yours until after the final payment. Effectively, the loan is secured against the car, which means if you miss your standard payments, you could have your car taken away.

• Hire purchase agreements can be set up by the car dealer or with a broker that offers the service in Hong Kong.

Hire Purchase is popular in Hong Kong

According to our expert consultants at Kwiksure - over 90% of buyers in Hong Kong go for HP. After the option of a bank loan, hire purchase is the simplest way to buy a car. Hong Kong buyers can over time make installment payments until the whole cost is met and the car becomes the property of the buyer.

Pros of hire purchase

• Flexible repayment terms (from one to five years) to help match your monthly budget – but the longer the term the more you’ll pay in interest.
• Relatively low deposit required for HP (normally 10% of the car’s price).
• Fixed interest rates so you know exactly what you’re paying every month for the length of the term.

Cons of hire purchase

• You don’t own the car until you’ve made your final payment, which means if you get into financial difficulties the finance company could take it away.
• You can’t sell or modify the car over the contract term without getting permission first. Only once you have completed the payment terms will the car be rightfully yours, to do as you wish.
• It can be an expensive route if you only want a short-term agreement.

Important advice for buyers

• When it comes to renewing the license fees, it is recommended that buyers should send a cheque and proof of valid car insurance to your HP dealer or broker before the license expires. Normally at least two weeks ahead of the day of expiration will be enough.

• In the worse case of total loss or theft of the car, the compensation amount will first pay to the dealer or broker of the HP agreement and then to the buyer.

• For an insured car that was purchased under an HP agreement, the original policy will be sent to the owners of the HP agreement and the duplicate policy and certificate of Insurance will be delivered to the buyer.

• Normally, HP dealers or brokers will not designate a particular car insurance company, so it is advisable to at least make sure you choose a reputable and respected motor insurance company in Hong Kong. Fortunately, Kwiksure is a leading insurance broker that consistently delivers the highest quality car insurance products and services for car buyers needing motor coverage.

With a lease, you do not own the car and are not paying it off. What you are simply doing is paying a monthly fee to a leasing company for the privilege of driving the car. You are effectively renting the car until you return it back to the dealer.

If buyers want to go down this route, we have provided some pros and cons to consider below:

• The payment agreement may feature lower monthly payments with little to no down payment required.

• If you are covered by a manufacturer's warranty during the lease term, you can rest assured about receiving a hefty, unexpected repair bill. On the other hand, as the leaseholder, you are accountable for the maintenance and coverage of at least third party insurance which is required by Hong Kong legislation.

• When the option to lease is available, as the buyer you are more likely to lease a new car every few years. This is good to know if you like to keep up with the latest and experience the most up-to-date technology, safety features, comfort, and style.

Cons of leasing a car

• In the end, leasing usually costs you more than an equivalent loan, if only because you are always driving a rapidly depreciating asset.

• If you don't maintain the vehicle, you'll have to pay excess wear-and-tear charges when you return the car. 

• Your agreement for leasing a car may be fixed for a period of time. So if you need to get out of a least before it expires, you may be hit with a heavy termination fee and/or penalty. Therefore it is imperative to fully read the terms and conditions before signing a leasing agreement.

If you did not know already, it is compulsory that you have insurance when buying or renting a car in Hong Kong. 

Drivers can choose to have either third party car insurance, where the insurance company will only cover the other car in an accident but not yours; or they can get the comprehensive car insurance which also covers your car and the other car. 

Benefits of getting comprehensive car insurance

Benefits may include:

• No claims discount
• Vehicle towing and roadside assistance
• Cover for damaged windscreens
• Monetary payouts for totaling your vehicle
• Cover for flood damage and fire damage 
• Replacement of your car should it get stolen 

You can check out our car insurance page to get a free quote on third party insurance and comprehensive insurance.

If you are interested in some further reading, you can find more of our articles on our blog page.

Contact us at Kwiksure today for some professional advice from our award-winning car insurance experts today!