Understanding Auto Finance Options

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Auto financing allows you to purchase or lease a vehicle by paying a low, (often) manageable deposit followed by monthly payments over a given period of time. When you are using a loan to finance a car purchase, you get to own the vehicle once you are done with the payments. Leasing, on the other hand, is paying to use a car and not paying for the car in particular. At the end of the lease period, the car dealer retains ownership of the car. If, however, you have changed your mind and would like to own the car, you can pay the residual amount for the car ownership to be turned over to you. You should be clear about whether you want to buy or lease a car before you begin your auto finance journey.


The Different Types of Auto Financing

There are different auto finance options you can choose to work with depending on your financial situation. After you have decided whether you are purchasing or leasing a car, you can decide on the plan that works best for you. You can use direct financing that lets you know your budget beforehand or indirect financing that offers the convenience of a one-stop shop. Usually, a loan is a more long-term as you end up owning the car while a lease is convenient for a short-term upgrade.


  1. Hire Purchase Financing

With this auto financing option, the vehicle you intend to purchase is the collateral for the loan you have borrowed. Normally, you are required to make a 10% deposit followed by fixed monthly payments over an agreed upon period. The vehicle’s ownership is handed over to you when you are done paying off the loan. This auto financing option can be made by a car dealership and is easy to setup.  This option offers convenience because:

  • The deposit is low
  • The payment terms are flexible
  • You get fixed interest rates


  1. Personal Contract Purchase

This auto financing option offers lower monthly payments over a longer period of time. At the end of the agreed-upon term, you can return the car to the dealer or pay the final amount of the resale price to own the car. You can also trade the vehicle in and begin again. This auto financing option offers flexibility with its lower monthly payments.


  1. Personal Contract Hire

This is a leasing auto finance option that allows you to use a vehicle for an agreed upon period of time. Once the term elapses, you return the vehicle to the car dealer. You pay fixed monthly payments that are inclusive of service and maintenance fees. Depending on your car dealer, you should take care not to exceed the mileage limit as stipulated in the contract. With this option, you are able to switch car dealers without any problem. Different auto financing options cater to different needs, so make sure you can afford the monthly payments before you lease a car.



Make sure you can afford the monthly payments and the car running costs before opting for any auto financing option. When borrowing a loan, consider the amount you are borrowing, the duration you have to pay it back and the interest rates of your lender.