When purchasing a new or used car, many potential buyers face the decision of how to finance their purchase. If you're not planning to pay for the car in full upfront, you'll need to consider your loan options. 

There are two main types of car loans available— car dealerships and private loans, and each has its own pros and cons. 

This Kwiksure guide will explain the features and processes of both types of loans, including important considerations and restrictions, to help prospective car owners make an informed decision about their financial arrangement.

Car Loans via Dealership

Car dealership loans involve obtaining financing through the dealership or an agent. These are secured loans where the vehicle registration document (牌簿) is held as collateral until the loan is fully repaid. During the loan period, the car must be covered by comprehensive car insurance.

There are two types of dealership loans:

Hire Purchase (租購): No down payment is required. This option allows you to drive away with almost no upfront costs but generally comes with higher interest rates.

Leasing (租賃): Requires an initial down payment of roughly 10% of the full price, usually covering the first few months' payments. Leasing typically has lower interest rates compared to hire purchases.

Application Process for Car Dealership Loans

1. The dealership or agent handles the application process.
2. You'll need to provide proof of income, identity, and address.
3. Approval and interest rates are usually communicated within a few working days.

Car Loans via Private Loans

Private loans involve applying directly to banks or financial institutions. This type of loan offers more flexibility in terms of loan amount and interest rates. Private loans generally have lower interest rates compared to dealership loans and do not require the car's registration document as collateral. This means you can sell the car without first settling the loan.

Some banks offer special car loans that cover not only the vehicle price but also insurance, accessories, registration, and license fees, helping reduce overall costs.

Application Process for Private Loans

1. Complete the bank's loan application form.
2. Submit proof of income, identity, address, and a copy of the vehicle registration document.
3. You should receive a response from the bank within five to ten working days.

Comparison of Car Dealership and Private Loans

Considerations and Restrictions

Credit Card Installments 

Some credit card companies offer the option to convert credit limits into installment loans. This might offer lower rates than private loans, but ensure the credit limit is sufficient to cover the vehicle price.

Fees

Banks might charge processing fees or other charges. Always check and understand the terms before committing.

Early Repayment

Most private loans allow early repayment but usually charge a processing fee equal to a certain percentage of the remaining loan balance. Dealership loans might not allow early repayment or may impose higher fees. Remember to check the terms and read the fine print before committing.

Vehicle Age

New vehicles generally face fewer restrictions, but loans for older vehicles (e.g., over 20 years) may not be available through dealerships, leaving private loans as the only option.

Insurance Requirements

Dealership loans require comprehensive insurance for the vehicle. For a loan period of 5 years, the total insurance premiums will at least run into the tens of thousands of Hong Kong dollars. Make sure to factor this into your budget.