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Credit norms tighten up for auto finance in UAE

Now credit history is the vital factor that will determine funding exposures

Image Credit: Clint Egbert/Gulf News
Visitors and delegates at the Dubai Motor Show yesterday. With auto sales seemingly turbo-charged, banks and dealershipsremain ultra-competitive in their offers
Gulf News

Dubai: It will not be an easy run for prospective car owners to tap auto financing. Banks have now made it mandatory that an individual’s credit history will be factored in before funds are released for the purchase, according to senior auto industry sources.

What it means is that no longer will a three-month pay slip or a perfunctory credit card statement be enough to convince banks of a candidate’s creditworthiness or otherwise. A bounced cheque in an individual’s history will mean that his chances of owning a car will turn remote.

“The entire credit history of the individual is up for scrutiny and as with some of the other measures the regulator has been taking on retail banking exposures, it means that only properly assessed buyers are eligible for funding,” said Salah Yamout, sales and marketing director at Arabian Automobiles. “But this in no way slows down the processing of applications - all that is required is the updated credit history of the applicant.”

At the broader level, the formation of the Etihad Credit Bureau will have its impress on how each individual risk is assessed. “I would not be surprised to see 4.5 per cent before the end of 2014 - 4.5 per cent is currently the market rate for SME customers and reflects a commercially acceptable margin for banks across the UAE,” said Steve Faulkner, managing director at Al-Futtaim Finance. “Etihad Credit Bureau creates the likelihood of a movement towards rates reflecting credit risk.

“Today the market benefits from low credit losses, a healthy responsible lending policy and measures to curb over indebtedness. Al-Futtaim fully supports the regulatory environment and lending norms, and believes the UAE will benefit further from the introduction of the credit bureau.”

But with auto sales seemingly turbo-charged, banks and dealerships remain ultra-competitive in their offers. There is now a campaign from a leading local bank which talks of auto loans at “rates starting from 0% upto 3 years” - and even those offering the same for five years - for buyers of a particular European auto brand. Whether the fine-print to these offers comes with caveats is not known.

On the whole, auto financing has been helped by rates remaining stable during the year. “Most banks supported automotive financing with rates starting from 2.49 per cent in the first-half; as we head towards year-end rates have increased marginally to 3.25 per cent,” said Faulkner. “Customers continue to benefit from low rates in the UAE and I can only forecast that rates ‎will increase in 2014, closer to 4.0 per cent.”