FINANCING OPTIONS:
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. Businessmen/self-employed persons and companies that use such a car for business purposes can treat the interest paid on the loan as a business expense and also avail of tax deductions against depreciation, in any accounting year. Loan agreements attract stamp duty depending on the state in which they are executed.

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 him 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 (mentioned under documentation later in this article) after the instalments are fully paid off.

For businesses/self-employed persons/companies, a car taken on hire purchase appears on their Balance Sheet as an asset and they can get tax deductions against the interest paid, along with the depreciation, in any accounting year. Please be aware that a hire purchase transaction attracts additional sales tax, turnover tax, value-added tax, stamp duty, etc. depending on the state in which the agreement is being signed.

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. This is the technical definition of a lease and you may come across several variants depending on the financier you are dealing with.

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. This helps the company is two ways. One the cars do not appear as assets on the Balance Sheet of the company (cars are usually treated as unproductive assets and best kept off the Balance Sheet), and two, the company can treat the entire lease rentals paid (principal + interest) as a business expense and avail of substantial tax deductions. However, under a lease, the financier, not you, claims the depreciation on the car.

Like hire purchase, a lease transaction attracts additional sales tax, turnover tax, value-added tax, stamp duty, etc. depending on the state in which the agreement is being signed.