Hire Purchase vs Bank Loan vs Chattels Mortgage: Car Buying in Kenya
When buying a car in Kenya, choose between hire purchase, a bank loan, or a chattels mortgage. Each financing option affects who holds the car's logbook. Understand these structures to make an informed decision.
A hire purchase agreement means the car dealer retains the logbook until the final payment. With a bank loan, the bank holds the logbook as security. Under a chattels mortgage, you keep the logbook but register the car as security with the bank.
This guide will help you navigate these options, explaining the processes and implications of each, so you can decide the best way to finance your car purchase in Kenya. Let's dive into the specifics.
Hire Purchase
Enter a hire purchase agreement if you want to pay for the car over time while using it. The seller retains ownership until you complete all payments.
Typically, you make a down payment and pay the balance in installments. The dealer keeps the logbook until the final payment is made. This means you can't sell the car until the agreement is complete.
- Negotiate terms with the dealer.
- Make an initial down payment.
- Pay monthly installments as agreed.
- Logbook remains with the dealer until full payment.
Bank Loan
Opt for a bank loan to purchase a car if you prefer dealing with a financial institution. The bank provides the funds, and you repay them over time.
The bank holds the logbook as collateral, meaning they have a claim on the car until the loan is fully repaid. This option may offer more flexible terms compared to hire purchase.
- Apply for a loan at your bank.
- Provide necessary documents: ID, proof of income, car details.
- Bank assesses your creditworthiness.
- Bank holds the logbook as security.
- Repay the loan in agreed installments.
Chattels Mortgage
Choose a chattels mortgage if you want to keep the logbook while still using the car as collateral for the loan.
You register the car as security with the bank, but you retain possession of the logbook. This option provides more control over the car, though it involves additional registration steps.
- Negotiate mortgage terms with the bank.
- Register the car as security with the bank.
- Keep the logbook in your possession.
- Repay the loan as agreed.
Documents Required
Regardless of the financing option, ensure you have the necessary documents ready to facilitate the process.
- National ID or passport.
- KRA PIN certificate.
- Proof of income (pay slips, bank statements).
- Car details (make, model, year).
- Sale agreement or proforma invoice.
Potential Challenges
Be aware of common challenges and how to address them when financing a car purchase.
- Delayed approval due to incomplete documentation.
- Higher interest rates if creditworthiness is low.
- Difficulty in transferring the logbook if terms are not fully understood.
- Ensure all terms are clear before signing any agreement.
Frequently asked questions
Who holds the logbook in a hire purchase agreement?
In a hire purchase agreement, the car dealer retains the logbook until you complete all payments. You only gain full ownership after the final installment is paid off, allowing the dealer to secure their interest in the vehicle.
What happens if I default on a bank loan?
If you default on a bank loan, the bank can repossess the car since they hold the logbook as security. It's crucial to understand the terms and ensure timely payments to avoid losing the vehicle to repossession.
Can I sell my car under a chattels mortgage?
Selling a car under a chattels mortgage can be complex since the car is registered as security with the bank. You would need to settle the outstanding loan or get the bank's consent before proceeding with a sale.
How do interest rates compare between these options?
Interest rates vary based on financial institutions and agreements. Generally, bank loans may offer competitive rates, while hire purchase agreements might have higher rates due to the risk to the dealer. Always compare offers from different lenders.
By Garisea Research Team. Published 15 September 2026. This guide is general information, not legal or financial advice — verify current requirements and prices before you buy.