Wokabi: Hire Purchase vs Asset Financing when buying a car on credit

Hire purchase vs Asset Financing: Most people have a resolution to buy a car this year. It’s a relief that these days, buying a car in Kenya on credit has been made very easy.

There are two main ways you can get a car on credit.

1. Bank asset financing
2. Hire purchase.

On this article I will take you through how you can acquire a car through both processes and their pros (Advantages) and cons ( disadvantages)

Bank Asset Financing:

Through this process; the bank “buys” the vehicle for you from the dealer and you pay back the bank through monthly installments for an agreed period of time. A deposit is however required.

The bank financing process:

Kindly note that you can be financed by any bank without you necessarily being their client. (For example; you can be financed by NCBA whereas you bank with Equity, but you would have to open an account with them):

1. The first step is identify the car you intend to buy and get an invoice for it.
2. You produce your I.D and KRA pin, bank statements for the last 6 months or one year depending on the vehicle. Mpesa statements can also be an added advantage. The reason why bank statements are needed is to deter
3. If you are employed you are required to produce a letter from your HR manager acknowledging that you are employed and on what basis..permanency or through a contract ( If on contractual basis, the letter should indicate the duration of the contract in years).

How you can get Sh. 500,000 business loan plus new Isuzu Nkr or FRR

If you are in business, on some instances you might be required to produce your business registration documents.

4. The bank runs through your credit history to ensure you are not listen on CRB.
5. If you have a clean credit record, and your turnovers are sufficient for the loan, the bank orders for a valuation of the car gives you an offer letter for the car.
6. Once you sign the letter, the bank offers a release letter which should be handed over to the dealer so as to release the car.

A tracker is installed on the car before release and comprehensive insurance from an insurance company on the bank’s panel of insurers is mandatory.

A few points to note are that most banks will finance up to 80% for a foreign used vehicle “Mtumba” and up to 95% for a brand new zero mileage unit.

However there are a few banks with 100% financing packages.

The percentage for up to which your car is financed is also dependent on your monthly turnovers.

Advantages of Asset financing:

1. Low initial deposits. If you get 80% financing for a car worth Ksh. 1,000,000, you are required to pay a deposit of Ksh. 200,000 to the dealer.
2. You are able to get a long payment plan for up to 4 or 5 years.
3. Due to a longer payment period, the monthly installments are cheaper since they are distributed over a longer period of time.

Disadvantages of Asset financing:

1. It is time consuming.
2. Chances of being ineligible are very high especially due to credit history.

Did you know that Bizna Kenya can arrange for asset financing for you? For more information on this drop us a message on our Facebook page.

Hire Purchase:

Hire purchase is a process of buying a car through a direct agreement between a car buyer and the dealer without the involvement of a bank or financial institution. There involves three main points of agreement

1. A deposit which is mostly more than 50% of the value of the car.
2. A payment plan, which only goes up to around 18 months maximum.
3. Amount paid on each monthly installment.

A tracker and comprehensive insurance are mandatory.

Advantages of Hire purchase:

1. The only documents you require are your I.D and KRA pin.
2. The process is fast, takes about 3 hours or  maximum of a day. You can drive off with your car on the same day.

3.A hire purchase agreement does not require credit history or bank statements.

Disadvantages of Hire purchase:

1. Initial deposit for the car is a bit expensive, mostly over 50% of the value of the car.
2. The payment time period is very short.
3. Due to a short payment period; monthly installments are a bit expensive.

Bizna Kenya can also arrange for hire purchase through our Network of dealers.

From my desk; I wish you a prosperous new year. Remember that you can also engage with me through my Facebook page. Hire purchase vs Asset Financing:.