Customers who already have an auto loan with the bank and wish to buy another car have several options.
According to Marwan Mohammad Hadi of HSBC Middle East Finance Company (Mefco), one of the options for borrowers is to retain the current finance agreement and apply for a second loan "while remaining within the maximum allowed exposure."
The second option is to sell or "part exchange" (swapping/bartering) the current vehicle, settle the original loan and apply for a fresh financing package. "This all can happen simultaneously. HSBC Mefco waives early settlement charges by up to 50 per cent for [its] customers renewing their loans," Hadi adds.
Hadi says rolling over any outstanding debt onto a new loan is "irresponsible" because this creates negative equity from day one, which means the settlement amount will end up higher than the current market value of the vehicle.
"It is not likely that a bank will ever roll over a car loan onto a new vehicle. This is because the first vehicle is mortgaged to that specific loan. Whether the banks technically could mortgage a second vehicle or not is irrelevant to them if they see an opportunity to sell a new loan and charge a redemption penalty on the old one," Steve Gregory of Holbon Assets says.
Rakbank also suggests transferring the loan from the previous owner to the new one. "The customer [buying] may alternatively wish to own two cars and can maintain the first loan while applying for a new one from the same bank. The new loan application is subject to the customer's debt burden ratio being within the bank's acceptable limits," Rakbank explains.
At Emirates NBD, customers wanting to upgrade to other cars will have to settle their existing car loans and apply for a fresh one. "They would have to apply for the loan through a new request where their application will be freshly underwritten," Vikram Krishna of Emirates NBD says.
"However, as a loyalty gesture, we would be giving discounts on the second vehicle and rebate on the early settlement fee," Krishna adds.
However, Gregory cautions against the idea of taking responsibility for someone else's car loan. "I've heard of people taking the car from a friend and making payments to the bank. This is fraught with difficulty, and often ends in tears. In some other countries, it is possible for banks to allow a guarantor to take over payments on a loan and take over the vehicle, but not in Dubai. There is no simple solution to bank loans except paying them off," he says.
"So, don't enter an obligation that you cannot meet in full. If you do need to change your car midway through a loan, most reputable car dealers will organise the repayment of the loan on the vehicle they take in part exchange on the vehicle you buy," Gregory adds.
Have you taken out a car loan? Did you face any difficulty getting one? Has the bank made it easy for you to pay it off?
Your comments
I have been banking with a local bank for 5 years and this is my second car that i have purchased based on loan basis. Previously when i had purchased my first vehicle i had some issues as i was only 20years at that time and the bank wanted my dad to sign a security cheq although i was on an employment visa and not to mention that i was my first time to apply for a car loan . But few months back when i had purchased another car i had no issues with the bank and the documentation and other paper works went very smoothly since i maintain a very good reputation with the bank. this was also during the global recession period. I thought i would not be able to take another loan but the bank easily approved it. i intend to keep this car without buying another one as it will be a waste. its all money that counts. I strongly feel that one needs to check his budget whether he is capable of finishing the loan.
Mathew Litty
Dubai,UAE
Posted: September 19, 2009, 11:29
