There are essentially three basic financing options available to you; Loan, Hire purchase and Lease. Each of these options has individual merits to suit a particular kind of borrower.
LOAN:
When you take a loan to buy a car, you are the registered owner of the car and the financier creates a lien on the same as a security. You repay the loan (principal) along with interest over a pre-agreed period (tenure) in the form of periodic instalments. In case of a default in payments the financier has the option of invoking the lien clause.
HIRE PURCHASE:
In this method of financing, the financier purchases the vehicle on your behalf. You hire it out from the financier with the intention of buying it from the financier at the end of a pre-determined period. In hire purchase, although you are the registered owner, the car is hypothecated to the financier (an endorsement is made in the R/C Book) thereby giving the financier the legal ownership of the car. The hypothecation is removed by a special procedure after the instalments are fully paid off.
LEASE:
In a lease, the financier leases out a car to you for a certain time-period, after which the financier can either take back the car or sell the car to a third party. In effect, you will not be the owner of the car either during the tenure of the lease or even after the lease has been terminated.
Lease is an attractive option for companies who are acquiring cars in the name of the company to be given out to their employees, with the employees having an option of buying the car on a later date at a nominal value.
