Dubai: An auto loan is a fast way to buy a car for those who don’t have all the necessary cash in hand. In the UAE, banks finance between 60 to 90 per cent of the value of the car, says Preeti Bhambri, managing director and founder of Moneycamel.com.. Borrowers can receive an auto loan — for new or used cars — within 24 hours once a purchase order is presented by the dealer, she adds.
But, no matter how exciting the prospects of a new car, buyers must make sure they can afford the monthly instalments and look for the best deal possible on financing.
Look around for the lowest interest rate, says Bhambri, and make sure it is set for the entire duration of the loan. “Some banks advertise low interest rates that are not for the whole lending term,” she warns. “Very important while looking at loans is whether the rate of interest mentioned is flat rate or reducing balance rate: Individuals should consider reducing balance rates,” Bhambri advises
Also, ask about additional fees charges, such as processing and release letter fees that might be due once the loan is paid, which can be as high as Dh 200 or more.
Islamic finance does not require the borrower to pay an interest rate. To put it simply, the bank buys the car from the dealer and sells it to the borrower at a higher price, which is how they make a profit. With Islamic finance, the borrower can receive a 100 per cent financing for the car they intend to buy. One bank in the UAE that is providing 100 per cent financing is Abu Dhabi Islamic Bank, which offers a ‘Car Ijarah’ contract that starts at 3.99 per cent per annum. The monthly Ijarah payments can be spread over 72 months and customers can get benefits, such as a discounted rate for insurance and an extended warranty for the whole tenor.
Ramadan is usually a good time to look for a car, and a loan. “There are a lot of offers in the market during Ramadan. There are gifts and offers like a two-year warranty on a car,” Bhambri said.
At the moment, Mashreq Bank offers an auto loan over five years, with a flat rate starting at 2.35 per cent per annum and going up to 3.95 per cent, according to Tooran Asif, head of personal loans at the institution.
Union National Bank (UNB) is offering to finance up to 80 per cent of the car’s value over 60 months, according to Mohammad Nasr Abdeen, CEO of UNB. Borrowers can receive up to Dh 500,000, with a flat rate starting at 2.25 per cent per annum or 1.49 per cent per annum for a one-year loan.