BUYING A CAR ON HIRE PURCHASE

In the most absolute sense, owning a car has become easier than ever before. Back in the day, you would either have to have the cash at hand or have bank finance. We know how that worked out since the majority of Kenyans didn’t have the cash at hand and were ineligible for such large-scale bank loans, as cars were that expensive back then.

A car used to be viewed as a luxury back in the day, only for a select few. In recent times, with the upsurge of Saccos and other facilities, it has become increasingly easy for one to own a car.

We’re going to discuss Hire Purchase Plans in this article.

What is a hire purchase plan?

While writing this article, I just realized that I had actually forgotten the definition of hire-purchase in spite of having a proper understanding of what it is and how it works. For the sake of those, like me, who don’t, explicitly, know what hire purchase means: hire purchase is a system by which one pays for a thing in regular instalments while having the use of it, according to the Oxford Dictionary.

Buying a car on hire purchase has its conveniences and its drawbacks. I hope to enlighten you on both perspectives so that you can consider them for your specific situation.

Before we dive right into the meat of it, I’ll give you a bit of my perspective on the issue. I took out a car on hire purchase (H.P) for the purpose of joining the transport industry in the form of an Uber. I had a broker who helped me locate and negotiate the offer and get the best deal for the car I sought. If you’d like to get in touch with my broker, feel free to reach out to me and I will connect you to them. The broker was an individual and not a company, so it was easy for them to understand my specific situation and help me get what I wanted rather than slap a wide-encompassing company policy that might not have met my needs.

1. Identifying the car I wanted.

This was fairly easy for me as I already knew the exact type and model of car that I wanted. Nonetheless, this was regardless since I ended up getting something completely different from what I wanted. My decision in what I wanted to get, however, played a huge part in my flexibility since I had a good idea of what I wanted and it allowed the broker to recommend cars that were within my range and, in many ways, better than I wanted. It’s always important to know exactly what you’re targeting so that you can stay within the bounds of your budget and your utility requirements. I, for example, wanted a car that could serve the purpose of an online cab while also having the utility to sustain my lifestyle when I’m not working. When identifying a car, you need to know what you will use the car for, what your budget range is, maintenance and running costs, and resale value (if you don’t intend to own it for long). Those are just a thin slice of the things you should consider. It would depend on your individual situation and circumstances, however, those are just a general outlook of the bare minimums you should think about when considering a particular vehicle. I would advise that you have a good idea of what you want before approaching anyone because there are unscrupulous business people who will take the opportunity to upsell you on something you did not want or need since you don’t seem to have a clear focus on what you want.

1. Purpose of the car.

You might not get this a lot, but if you’re considering buying a car on hire purchase, it will also depend on the purpose of the vehicle. If you’re purchasing the car for a sure-fire business endeavour then, by all means, go right ahead. You just need to make sure that the business opportunity will be able to cover the costs of running and maintaining the car. If you’re purchasing it for personal use, this is a bit different and might depend on your specific situation. Your situation might make it a little more complex or worthwhile. If, for example, you have money to purchase a regular Toyota but instead put a deposit on a BMW, you might be doing yourself a disservice. This is because cars that are bought on HP tend to be more expensive than market price cars. This might also be an indication that you cannot afford the car that you’re buying on HP. A car that is bought for personal use, in my opinion, should be bought in cash or through other affordable financing methods. Remember that a personal use car is a liability, so you can live without the headache of paying a premium on a depreciating asset.

1. Your broker.

You need to consider this with great attention. I might recommend my broker because they helped me in my situation, but even my recommendation should be taken with a grain of salt. I’m just a random person on the internet anyway.

A broker can help you minimize costs and save on the total price or they could be the key instrument that will be used to completely rip you off. The best way to get a broker is through personal recommendation from someone you trust and/or someone who’s been through the process themself. Realize that a broker could be a friend who recommends you to a specific company, even though they don’t call themselves that. A broker could be a company that works out the nitty gritty for you or an individual who works in the automotive industry or explicitly brokers the purchase and sale of vehicles. It all depends on what you want. You might want a broker who gets a car from abroad on your behalf, who helps you locate a yard that has your desired car here in Kenya or who locates a locally used car for you.

It all depends on your needs, but the bottom line is that you have to completely trust this person and have proper and trackable references for them. I’ve heard stories of how people were conned off of their downpayment and let me tell you, it did not sound like fun!

1. You’ve isolated your broker and are now ready to dive into the shark-infested waters of buying your car.

Before proceeding, I would like you to reconsider your other options for purchasing a car. Remember, a car is a liability unless it’s used for business. Whether or not you use it for business though, it’s still a depreciating asset and you want to pay as little as you can for it. Hire purchase agreements are among the most expensive methods of purchasing vehicles and if you have an option to get your car by other means, I would highly advise so. You might want to consider bank finance or Sacco financing options before settling on a hire purchase agreement. I’m not well versed in those two methods of purchase but I’m convinced, at this time, that they are cheaper than hire purchase.

1. Desperation when buying a car.

If you’ve gotten this far, I guess there’s no convincing you otherwise. You’ve set your mind on hire purchase. Just make sure that you’re not heading into this agreement with greed, impatience or a strong unreasonable desire for a car. Those are major pitfalls that could lure you into a trap that you will stay in for the better part of a year or two years.

You want to stay away from advertisers who are giving you attractive deals with very low deposits. These advertisers will issue an advertisement on online classifieds with a deposit as low as 30% of the value of the car just to lure you. They will mostly have the cars in yards in Mombasa since this is where most hire purchase plan cars are gotten from. They will then ask you to come to Mombasa but when you arrive they’ll tell you that that yard is out of that deal and you need to get a more expensive deal. Most people wouldn’t want to come back to Nairobi without the car after going all the way, so they’ll agree to the more expensive deal. This is a trap to get you to spend more. You need to get your psychology in check and not fall trapped in those deals that look too good to be true. If a deal looks too good to be true, it probably is. Remember, something that looks cheap might end up costing you more than you anticipated.

Part of managing your psychology includes checking market prices so that you can get an accurate picture of what’s realistic and what isn’t. You might also want to cold call dealers directly or visit them in person to hear what they have in store. This will help you have a basic understanding of what market prices are and what a good deal would look like. Your broker basically serves to help you get a better deal since they already have a relationship with the dealer or seller. I’m not, in any way, insinuating that there are no fantastic deals out there, just be careful when you see a deal that feels too good to be true. There’s probably a catch, and you don’t want to be the one that gets caught.

1. The car itself.

You’ve done due diligence and now you’re on your way to acquiring the car itself. Many people don’t consider this, but you need to seriously think about the car itself. What kind of issues do these kinds of cars have? What kinds of issues does this make or model of the car usually have? You need to consider that German cars are generally expensive and cost more to maintain than Japanese cars. Unknown to many, there are some Japanese cars that were actually manufactured in Europe with European standards and technology in mind. These cars might be a money pit if you’re not well-versed in the automotive industry because their repairs and maintenance will likely be similar, if not more expensive, to German cars. There are also other car models that have inherent problems like faulty gearboxes, drive shafts, engines, rear axles and many more that I’m not qualified to talk about in this article. Always make sure that you’re comfortable with the common recurring problems with the car that you’re interested in purchasing. Separate from that, make sure that the car itself is inspected by a mechanic you can trust so that they can spot any glaring issues and inform you of what to watch out for in future. Also, make sure that you go on a test drive. Don’t just identify a car and head straight to the bank and pay it off. Most car dealers don’t have warranties or guarantees and any misfortunes you may run into as soon as you’ve made the payment will solely be upon you.

1. The dealer.

You’re now at the dealer and want to purchase your car. Hire purchase schemes are different from other methods since this form of purchase is not heavily regulated and is, mostly, at the convenience of the dealer.

You are likely going to run into the following types of dealers in the market:

1. Asians.
2. Indians.
3. Pakistanis.
4. Middle-Easterners (Arabs).
5. Kenyans.
6. Kenyan-Indians.
7. Kenyan-Arabs.
8. Kikuyus.
9. The rest.

I would like to get into it but I really don’t have the requisite experience to comment on the experience with each of these groups. I’ve only heard of other people’s accounts, which I cannot substantiate. The accounts were that Arabs were the most expensive and very timely with their payments. You shouldn’t delay your payments with any of these groups but you shouldn’t, especially, delay with theirs. I dealt with Pakistanis and my experience was that they were more lenient with their prices, and payment and offered leeway when you delayed. I’ve heard the same from others and I can confirm that the general consensus with Pakistanis is that they’re very understanding. I’ve not heard a lot from people who dealt with Indians from India, so I cannot comment on that.

When it comes to local Kenyans, be they Indian, Kikuyu, Arabs, Somalis or the rest, I don’t think there’s much to say there. It’s just business as usual as far as I’ve heard.

Bear in mind that, other than the Pakistanis, the other groups mentioned here are only deducted from hearsay, so they cannot be confirmed to be true or a complete generalization. Even my own experience might be attributed to the specific company I worked with. The race, nationality or tribe of the dealer might not even play a role in how you interact with them. It really is a very minor factor, however, the biases in our country are pretty strong so I thought I would bring it up.

1. The market price of the car vs deposit, monthly payment, insurance, tracker and maintenance costs.

You’re almost driving out in your “new car”. I put new in quotes since new in Kenya is technically used in other foreign markets unless you have ‘that’ kind of money, which I don’t know why you’re even doing this arrangement.

You need to consider the market price of the car against the deposit because you will definitely need to put down a deposit that will depend upon the number of months you intend to spend paying for the car. Always keep in mind that higher deposits typically mean lower monthly payments and lower interests overall while lower deposits mean higher monthly payments and higher payments overall.

Always keep in mind that if you’re buying a car through any funded program, it is mandatory to have comprehensive insurance, which will vary depending on the car itself and whether it’s for private or business use. It is also mandatory to have a tracker installed in the car for guarantees in case you default on your payments. Insurance payments may be flexible depending on your financier but the tracker must be paid for by the buyer. Most H.P. financiers will charge around KShs 15,000 but this price will depend on the market.

You need to factor in these costs when buying the car because just putting down a deposit won’t allow you to drive away in your car immediately.

Also note that when you default on your payment, the financier is at their discretion to charge you a late payment fee. This is especially true for H.P. Some will not charge this out of goodwill, your understanding with them or your payment record, but it should always be at the back of your mind. This is always indicated in the contract you sign when you place a deposit on the vehicle.

Always note that the danger of your car getting repossessed is always real if you delay your payment and you will pay around KShs 30,000 - 40,000 in repossession fees should it get repossessed, which is necessary before the car is handed back to you after paying your default. It is also at the discretion of the dealer to resell your vehicle should you not repay your default within a specific amount of time. You should understand that there unscrupulous dealers who will wait for you to delay and resell your vehicle within two weeks if you don’t settle your outstanding bills. For some of these dealers, this is their primary business. Which I find completely disgusting.

On this same issue, a good broker will inform you of their policy with regard to repossession. Some offer more leeway others don’t. Regardless of the leeway offered, you don’t want to find yourself in a situation where your car is getting repossessed since it will add extra strain to your already strained resources. It is always wise to consult your dealer on options available to you so that you can avoid getting your car repossessed. It is usually independent contractors that are hired to track down and repossess your car and at the end of the day they have to get paid.

From what I’ve heard from others, it is wise to never let your default go over three months. This is not a recommendation that you should default for three months, whether in a row or otherwise. This is just advice that your dealer will only allow you so much leeway, in case you’re in a tight spot, but the dues have to be paid.

1. Payment currency.

Although I’ve not experienced it first-hand, I’ve heard that some dealers want to be paid using the dollar as the base currency.

This could spell doom or promise for you depending on the direction of the Kenyan shilling. With how the shilling is doing today, you need to factor in that the dollar might continue getting stronger in the long term and you will pay more than you had initially bargained for.

Inflation might also play a factor if a foreign currency is used. I don’t have enough information on how inflation will affect your payment so I won’t comment on that matter,

1. Dealers.

When it comes to dealers, I’m afraid I’m not an expert on the best dealer who will give you the best deal or treat you the best, I can only comment on my own experience. I dealt with Haroon Yuasa Limited or also known as Yuasa Motors. The experience was great, I received a great deal compared to the dealers in the area that I scouted for in Mombasa. I also received great treatment when I defaulted or delayed my payments and overall had no major complaints. This might be my own experience so it should not be used as a yardstick for what you will receive. They are in business for themselves and I am not affiliated to them.

Overall, hire purchase has enabled many Kenyans to afford vehicles and other items that would typically be out of their reach, however, a stern warning has to be followed with this method: make sure that it is within your ability to repay your loan in full and on time as delaying may cause you unnecessary pain and heartache.

You made it to the end of the post! Have you purchased a car on hire purchase or are you interested in buying a car or other property on hire purchase? Feel free to leave me your feedback on your experience with the same.

This article is heavily prejudiced on my experience, feel free to express your feedback on where you feel I came off too heavy-handed, it will benefit other readers.