Everything You Need To Know About Car Financing: Car Loans / Personal Loans / Balloon Payment

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When it comes to car financing, you have a couple of options up your sleeve. You can either go for a car loan offered by the bank, or you can try financing your car through personal loans. Another option that might ring a bell is the balloon payment. Don’t know which on to choose? Don’t sweat it, MoneySmart has got you covered with everything you need to make an informed decision about car financing.


Table of Contents: Car Financing


Getting Car Loans: Dah Sing Bank, CCB (Asia), Chong Hing Bank

Banks that offer car loans are mostly small to medium-sized, including OCBC Wing Hang Bank, China Construction Bank (Asia), and Dah Sing Bank.

When applying for a car loan, the bank will request the vehicle registration document from the applicant as collateral. This document not only proves the ownership of the vehicle but also serves as its birth certificate. 

They will keep the registration book until the repayment is complete.

Car Price and Age Affect the Auto Loan Amount

Banks generally advertise that loans can cover up to 100% of the car’s price with interest calculated on an annual flat rate basis, but you need to call each bank individually to inquire. If the repayment period can be up to 60 months, the bank will help with the renewal of vehicle registration and insurance matters.

Second-Hand Car Has Lower Loan Amount and Shorter Repayment Period

However, you should note that if you apply for a loan for a used car, the actual loan amount you can receive will be lower, only about 85% to 90% of the car price, and the repayment period will be relatively shorter. Therefore, the loan amount for car loans is actually subject to the price and age of the car, and you also need to consider insurance costs.

Car Insurance Fee Will Drop Each Year (With No Accident)

According to a friend who has worked in the industry, if you purchase a car with a car loan, you must also buy comprehensive car insurance, also known as “full coverage”. For those who have just obtained their driver’s license, the annual insurance premium will be between HK$9,000 and HK$10,000. Assuming no accidents occur, the premium will decrease annually, up to a maximum discount of 40%.

However, if you don’t need a full car loan, you can purchase third-party car insurance instead, which costs almost half as much as full coverage. The annual cost of third-party insurance is only about HK$3,000 to HK$4,000, and assuming no accidents occur, the annual insurance premium will also decrease annually, up to a maximum discount of 40%.


Getting a Car with Personal Loans: HSBC and DBS Bank

Aside from car loans provided by banks, you may also consider applying for personal loans offered by banks. Generally, banks will determine the loan amount according to your monthly salary, and the repayment period can be freely chosen.

For example, for a car worth HK$400,000 paid over 60 months, we have compared the actual annual interest rates and monthly repayment amounts of personal loans from four banks, including DBS Bank, Standard Chartered Bank, Hang Seng Bank, and HSBC.

The table and related products are listed below:

Comparison of Actual Annual Interest Rates and Monthly Repayment from DBS Bank, Standard Chartered Bank, Hang Seng Bank, HSBC

Here’s an example of a $400,000 Loan with 5 Years:

Bank Actual Annual Interest Rate Reference Monthly Repayment
DBS Bank 6.48% HK$7,788.14
Standard Chartered Bank 6.28% HK$7,752.88
Hang Seng Bank 6.04% HK$7,710.64
HSBC Bank 7.93% HK$8,044.78
DBS logo

Monthly Payment

HK$7,507

Monthly Payment
MoneySmart Exclusive
Instant cash out single-handedly
APR
5.75%
Total Amount Payable
HK$450,400
Total Interest Payable
HK$50,400
Monthly Payment
HK$7,507
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HSBC logo

Monthly Payment

HK$8,067

Monthly Payment
APR
1.88%*
Total Amount Payable
HK$484,000
Total Interest Payable
HK$84,000
Monthly Payment
HK$8,067

WeLab Tesla Mega Combo: A Car Loan Made for Tesla

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Tips for Getting a Car Loan or Personal Loan

When you apply for a loan, whether it’s a personal loan or an automobile loan, the interest rate you get is determined by your credit status. To compare the interest rates of different banks’ personal loans before applying for a car loan, visit the MoneySmart website. Once you have found the best interest rate, compare the interest rates offered by banks for car loans and determine which type of loan is most suitable for your situation.

Discover the car loan that fits your needs best at MoneySmart.


What Is the Difference between Car Loans and Personal Loans?

Car Loans

Banks and car dealerships often offer car loan options specifically designed to help you pay off the cost of your vehicle. Most car dealerships have their own in-house financing options. Some people opt for car loans to finance their vehicles, which are essentially a type of personal loan that takes into account the depreciation of the car’s value over time.

Car loans typically require a substantial down payment at the beginning of the term. The larger your down payment, the lower your monthly payments will be.

Personal Loans

Personal loans can either be secured or unsecured. With secured loans, the lender uses assets that you already own as security. On the other hand, unsecured loans rely solely on your credit status.

When you apply for a personal loan, the lender will check your credit score to ensure that you can repay the loan on time. If your credit score is not ideal, you might have a better chance of getting a car loan instead of a personal loan. However, even if you are approved for a personal loan with bad credit, you will have to pay a much higher interest rate.

It is advisable to pay off as much of your outstanding credit debt as possible before applying for any kind of loan.

WeLend logo

Monthly Payment

HK$12,860

Monthly Payment
MoneySmart Exclusive
The lowest APR
1.88%
Total Amount Payable
HK$308,640
Total Interest Payable
HK$8,640
Monthly Payment
HK$12,860
MoneySmart Exclusive:

 Selected customers can receive up to HK$16,000 Cash Rebate upon successful draw down!

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Valid until 30 Apr 2024

More about car loans and personal loans: MoneySmart Best Car Loan in Hong Kong 2023


What Is Balloon Payment On Car finance?

A balloon payment is a large lump sum payment that is due at the end of a car finance agreement. This payment is typically much larger than the regular monthly payments made throughout the loan period. The purpose of a balloon payment is to lower the monthly payments during the loan term, but it can result in a large payment due at the end of the term.

Should you get a balloon payment?

Some people may think that a balloon payment can reduce the monthly payment throughout the loan period, making a car purchase more affordable. Balloon is for those who believe that at the end of the term, they will have enough cash to pay back the balloon payment when the loan period is up.

MoneySmart Tip:

A balloon payment doesn’t make a car purchase cheaper. Instead, it just spreads the cost over a different repayment period. If you’re not certain that you can accumulate enough capital to repay the balloon payment, you may want to find a different car finance option that is better suited to your income flow.

What are the pros and cons of getting a balloon payment?

Pros Cons
Can allow for a more expensive car to be purchased Large lump sum payment due at the end of the loan term
Lower monthly payments High risk involved
Cost of a balloon payment can be higher

Before taking the plunge on a balloon payment, it’s important to weigh the pros and cons. On one hand, a balloon payment can allow for a more expensive car to be purchased with lower monthly payments during the loan term. On the other hand, there is a high risk involved, and the cost of a balloon payment can end up being a heavy burden.

It’s important to make sure you have your ducks in a row before making a decision on balloon payment.

What happens if you can’t pay for your balloon payment?

If you’re unable to make the balloon payment, there are two simple options:

Option #1: Sell or trade in your current car to cover the balloon payment.

If you are unable to make the balloon payment, you can sell or trade in your car for cash in order to repay the debt.

Option #2: Refinance the outstanding balance.

Another option is to refinance the balloon payment with another personal loan if you have a good credit score.


Frequently asked questions: Car loans

Should I Get a Personal Loan to Buy a Car?

Purchasing and owning a car can be a costly endeavor. In addition to monthly payments, you must also consider expenses such as fuel, maintenance packages, daily toll fees, parking fees, car insurance (including third-party liability insurance and comprehensive motor insurance), first registration tax, and a Hong Kong driving license.

If you find that the funds in your bank account are insufficient to cover the full list price of your desired car, car financing may be a viable option for you to consider.

How Do I Apply for a Car Loan?

To apply for an auto loan, you usually need a Hong Kong identity card, proof of your residential address, a bank statement, and a vehicle sales and purchase agreement.

Before applying, make sure you can repay the loan and compare interest rates and other terms.

Should I Pay Off My Car Loan Early?

Have you considered paying off your loan early to ease your financial burden? Before taking any action, check the terms of your loan! Early repayment can affect how much banks and other financial institutions earn in interest, so many loans have fees for early repayment listed in the contract. Be sure to read the terms carefully to avoid financial loss.

What Are Third-party Car Insurance and Comprehensive Insurance?

Third-party Insurance

According to regulations, any type of vehicle driving on the road must purchase third-party liability insurance (commonly known as third-party insurance) to compensate for the losses caused by the car owner to others. Although the regulations only require the purchase of personal accident third-party insurance, most third-party insurance on the market also protects against losses to other people’s property (i.e., vehicles).

Comprehensive Insurance

Comprehensive insurance not only covers third-party liability, but also covers vehicle damage or theft, accidental collisions or malicious damage, and compensation for the repair costs of the other party’s vehicle damaged in a traffic accident.

Some insurance companies, like Zurich Insurance Group, may also provide additional coverage, such as temporary replacement cars and free 24-hour towing services for insurance policyholders.


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