In-Depth Analysis of the 4 Car Payment Methods

Whether buying a new or used car, the cost can range from tens to hundreds of thousands. Car dealers and companies offer various payment methods. Besides traditional installment payments through financing or personal loans, there are also options like leasing, hire purchase, and rent-to-buy schemes. Kwiksure is here to analyze these four car payment methods, examining their unique characteristics to help you better budget your car purchase.

What's the difference between "Leasing" and "Hire Purchase"?

"Leasing" and "Hire Purchase" are two different methods. Strictly speaking, traditional leasing doesn't involve purchasing the vehicle - it's a rental arrangement in which the driver doesn't own the vehicle.

Leasing

The current market definition of leasing has become vague, with many car dealers offering "lease" options for vehicle purchases. For example, BMW Hong Kong provides buyers with a leasing option that allows them to purchase a vehicle through installment payments. Buyers are required to pay six months' installments upfront as a down payment.

Hire Purchase

Hire purchase involves signing a contract for a specific term, such as 3 or 5 years. Using BMW Hong Kong's iX1 eDrive20 xLine as an example, buyers need to pay 50% of the vehicle price as a down payment, followed by monthly payments. When the contract expires, buyers can choose to pay the remaining balance to fully own the vehicle or return it to the dealer. The advantage is lower monthly payments, but the disadvantage is having to pay a large final payment at the end of the contract.

The table below outlines the details of three different payment options: monthly installments, leasing, and rent-to-buy, along with the total amount payable for each. It's important to note that while the down payment for the rent-to-buy option is higher than that for leasing, this does not necessarily mean that the final total amount will be lower. This is because the installment period for rent-to-buy is longer, and, most importantly, leasing typically has a much lower interest rate. As a result, the total amount paid at the end of the leasing option can be cheaper than rent-to-buy. Therefore, when choosing a payment method, it’s essential to consider the monthly payment amount and the interest rates involved.

Tips for Choosing Payment Methods

• Don't focus solely on monthly payment amounts
• Pay attention to actual interest rates
• Calculate the total payment amount
• Consider your down payment capability

The table below uses the Mercedes-Benz EQA 250+ as an example to showcase the difference among various payment methods.

Dealership vs Private Loans

Although "leasing" and "rent-to-own" are both forms of installment payments, the previous section has covered them in detail. Here, the term "installment payment" refers specifically to paying for the vehicle price through pure installments.

Generally speaking, most people currently use one of two methods: dealership financing or private loans. Dealership financing involves applying for installment payments through a car dealership or agent, which is a form of secured loan. In this case, the vehicle's registration document must be kept with the financing company as collateral until all loans are repaid. Additionally, during the financing period, the vehicle must be insured with comprehensive coverage.

Private loans involve borrowing directly from banks or financial institutions with repayment in installments. Buyers have more flexibility in deciding the loan amount and can compare interest rates from different banks. Most importantly, the interest rates are typically lower than that of dealership loans, and there's no need to surrender the vehicle registration document as collateral, making it easier to sell the vehicle in the future without having to clear the loan first.

Is Rent-to-Buy Worth It?

Besides brand dealers' hire purchase schemes, some companies now offer rent-to-buy programs. Similar to hire purchase, users pay monthly rent for the vehicle, and at the end of the rental period, they can choose to pay the remaining balance to purchase the vehicle or return it. Vehicle choices are more flexible - for example, GoSwap offers the Tesla Model 3. The longer the rental period, the lower the final purchase price.

The main difference between this rent-to-buy model and traditional hire purchase is that during the "rental" period, the renter is not the vehicle owner. Therefore, they don't need to pay for insurance, license fees, and maintenance. Some plans even include free Tesla Supercharging. Although the total amount paid is higher, it offers greater convenience and a thorough opportunity to determine if the vehicle suits your needs. Whether it's worth it depends on individual requirements.

However, note that there may be restrictive terms during the rental period, such as monthly mileage limits, with additional charges for exceeding these limits.

*Information in this article is for reference only. All details are subject to official announcements by relevant parties.

Frequently Asked Questions

What's the difference between vehicle "leasing" and "hire purchase"?

Leasing and hire purchase are different methods. Traditionally, leasing doesn't involve vehicle purchase; it's purely a rental arrangement; Hire purchase involves a fixed-term contract where buyers can choose to pay the remaining balance to own the vehicle or return it to the dealer at the end of the term.

Is rent-to-buy worth it for cars?

Rent-to-buy doesn't require personal payment for insurance, license fees, and maintenance, and may include perks like free Tesla Supercharging. While the total cost is relatively higher, it offers greater flexibility and a chance to evaluate if the vehicle suits your needs.