Owning a car: Buy today, drive now, pay later

When auto financing first took root in Uganda, car dealers worked with banks to ease payment terms for one’s dream car over a period of time. Taking car loans helped many individuals and companies to acquire cars or even fleets of cars after making the required initial payments.
The security for that loan was the asset financed for the loan until the buyer fulfilled his repayment obligations. The car dealers then, would work with the bank to set terms of financing for the loan, most of the time the loan repayment spreading over a period of five years maximum.

Initially, the buyer had to make a 20 per cent cash deposit commensurate with the cost of the car and charged an interest rate depending on the prevailing market rate.
Initially, the arrangement was made for only new cars but later car dealers took on the initiative and started selling reconditioned cars using the same arrangement.
With time however, car dealers have resorted to taking the banks out of the arrangement and deal with the buyer themselves.
According to Christopher Kiiza of CK Investments, located on Kabakanjagala Road in Mengo, as long as a buyer can prove his permanent residence and proof of income, they are ready to deal directly with them.

“Over the last five years, we have been able to give out cars to hundreds of clients under this arrangement. This has even been made easier with the issuance of the national IDs which make it so easy for us to know the person’s background,” Kiiza says.
He adds that at CK, they sell to customers from all walks of life, with cars ranging from as little as Shs5 million upwards.
“Many customers have come and taken cars costing Shs10 million, making a down payment of Shs4 million and paying the balance in monthly installments depending on how we agree,” he says, adding that their finance leasing system is dependent on the customer’s income per month.
He says they issue more than 17 cars per month under this arrangement.
Henry Matovu, a car dealer at Kibuye on Entebbe Road, says the arrangement has attracted more customers, most of whom say it is now easier and cheaper to get a car.
“We found this arrangement so friendly to the customer other than hassling with the loan interest. This system simplifies everything and it builds trust between the car dealer and buyer,” Matovu said.
He adds, “I have many customers who started with small cars and have now acquired big cars while others have even taken on commercial trucks after clearing the initial purchase.”

Challenges
Like any other business, car dealers using this arrangement face a few challenges especially honesty. Kiiza says the biggest challenge they face is selling cars to customers who also sell them to other people, making the process of tracing the car difficult in case of default in payment.
However, he explains that most customers who default do so and rather than approach the car dealer to make arrangements in settling the default, they keep evading.
“For us our interest is not in taking this car away from the customer. We are happy when a customer takes a car and after the agreed period, they come for their log book. We encourage our clients that if there is a problem they should always communicate so that we adjust payments accordingly,” he says.

Pay up and get new car
The beauty of this arrangement, according to Kiiza, is that after the car has been paid for in full, the customer can return it and take a newer car and make the payment for the top-up in small installments.
Hamis Kamya, a special hire taxi driver in Munyonyo bought a Toyota Corona from CK Investments in July 2015. The agreed sale price was ShS7.5 million. He made a cash deposit of Shs4 million, and says by June, he intends to upgrade to a Toyota Noah.

“I have had no pressure from the bank or having to think about the rising interest rate. Even when I delay to pay, I call Kiiza,” he says.
He adds that it is wiser not to wait for the agreed upon date to make payment. Mr Kamya advises that it is easier if one made small deposits when you get money other than waiting for the agreed upon day.
“I deposit any amount I get until I clear the monthly installment,” he says.

Precautions to take when buying a car
• Buy from an established firm with a permanent address and physical office. Car dealers found on streets are tricky to deal with, since the dealer retains the log book until full payment is made. Cases have been reported of cars confiscated by people other than those who sold the car to the buyer. The reclaimers will have the original logbook and deny knowledge of the dealer that sold the car on hire purchase.
• Take time to check the mechanical condition of the vehicle before buying it. It is very stressful to have to pay for a car every month yet you have to take the car for fixing every so often. In most cases, if a buyer takes the car without checking, the dealer is not responsible for any break down.
• Always ask to look at and verify the original documents before the first deposit is made.