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UAE’s car owners have never had it this good

Some banks are offering auto finance at sub 2.5% and throwing in additional benefits

Gulf News

Dubai: With the new model launch season in full swing in the UAE, financing a new car need not be a concern for buyers as long as they can put up the initial 20 per cent deposit.

Auto financing rates are at “historic” lows of 3 per cent and under as financial institutions look for opportunities in consumer banking. “The rates are not high compared to previous years,” said Bassem Baz, Finance and Insurance Manager at Al Habtoor Motors. “Current rates are very competitive and the average is three per cent, whereas the previous year it was around 4 per cent.” There are even lenders advertising rates at 2.5 per cent and lower.

Mashreq, one of the more aggressive players in the retail banking space, recently came out with an auto financing offer of a flat 2.35 per cent and backed by a 24-hour approval and ancillary rewards for the borrower. “Starting at ultra-low rates and bundled with other benefits enable our product to be affordable and customer-focussed,” said Tooran Asif, Head of Personal Banking at the bank.

At the same time UAE’s car owners are now more likely to buy a new vehicle as dealers are able to offer competitive prices on the latest models because of favourable currency exchange rates. Dealerships reckon that close to 2,000 car registrations take place each month, though there is no official data to back up these numbers.

“The transitory population has come down appreciably and on top of that there is the number of new expatriates joining the workforce each month,” said Tom Smith, Executive Vice-President and Group Head of Retail Banking at United Arab Bank (UAB). “For the latter group, a car would be one of the first serious acquisitions [while] setting themselves up here. Banks – and financing companies owned by car dealerships — are only too willing to help them out as a way of hooking a customer through the first deal.”

New approach

But it is not a one rate fits all banks situation. Or for that matter in the way they target likely customers. Some banks are willing to finance purchases for buyers who earn salaries of Dh5,000 and more a month, while others prefer to start lending for those in the Dh20,000 and plus range.

“It does not mean either of these approaches is right or wrong — it is down to how an individual bank sets its risk appetite and, subsequently, its financing rate,” said Smith. But there have been some concerns, albeit muted, that dealerships too are being too aggressive in wooing new car owners with the promise of low rates.

“We are most transparent and, as such, have not substituted artificial finance rates with customer front-end offers as we consider these to be stand-alone propositions, said Mark Kass, Regional Managing Director at Al-Futtaim Honda. “Moreover, the offers are fair and equal to both finance and cash customers. The auto finance business is as competitive as ever [and] banks are thinking creatively in their offerings.”

Baz at Al Habtoor Motors also said the current rate regime is not over-the-top. “Optimised finance rates are similar to other marketing tools like discounts or free insurance to attract customers,” he said. “The cost of these discounted rates — or any offer — may vary from month to month based on dealer aggressiveness to attract more customers.”


Check out the bundles

New car owners are increasingly being careful when considering bundled offers that tie financing to free insurance or a credit card. They have been hugely popular, but this is changing.

“Today the customer is not very keen in bundling of auto finance and auto insurance,” said Mustafa Vazayil, Managing Director at Gargash Insurance. “The primary reason is customer experience on some of the bundling offers were very poor on the motor claims service. The customer is [now] more informed and prefers arranging his auto insurance through known insurers.

“Bankers will also find it difficult to bundle because [of] competitors who focus their resources solely offering auto finance. Also, for the last two years falling motor rates have made it difficult for banks to tieup insurance as well.”